Why is it that ISA (UK) accounts that one doesn’t regularly need access to (ie, there are restrictions in terms of accessing the money) pay higher interest rates compared to those you do need access to.
The interest rate on fixed-rate products that don’t allow withdrawals is typically higher than the rate on products that allow you to withdraw money at any time. Please explain the logic behind this.
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Investors are giving up rights to access their money at will, and that comes at a price. The price is reflected in higher interest rates. From the investment house perspective, they can be more confident that the funds on deposit in a restricted account will remain on deposit compared to funds in an unrestricted account. This allows them to use more of those funds for their own investing or lending, generating higher returns and more easily satisfying regulatory reserve requirements. For those additional returns and benefits, the investment house is willing to pay more (i.e., pay more interest). Also, on a macro level, the investment houses need to “couple” longer-term investments with longer-term holdings/deposits – helps to manage cash flow.
Investors are giving up rights to access their money at will, and that comes at a price. The price is reflected in higher interest rates. From the investment house perspective, they can be more confident that the funds on deposit in a restricted account will remain on deposit compared to funds in an unrestricted account. This allows them to use more of those funds for their own investing or lending, generating higher returns and more easily satisfying regulatory reserve requirements. For those additional returns and benefits, the investment house is willing to pay more (i.e., pay more interest). Also, on a macro level, the investment houses need to “couple” longer-term investments with longer-term holdings/deposits – helps to manage cash flow.
Investors are giving up rights to access their money at will, and that comes at a price. The price is reflected in higher interest rates. From the investment house perspective, they can be more confident that the funds on deposit in a restricted account will remain on deposit compared to funds in an unrestricted account. This allows them to use more of those funds for their own investing or lending, generating higher returns and more easily satisfying regulatory reserve requirements. For those additional returns and benefits, the investment house is willing to pay more (i.e., pay more interest). Also, on a macro level, the investment houses need to “couple” longer-term investments with longer-term holdings/deposits – helps to manage cash flow.
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