Spotlight On: Fixed-rate ISA

The deal

AA Savings is paying 3.5 per cent on its two-year fixed-rate ISA.

The good points

The rate looks decent compared with rival offers at the moment. You can invest from just £1 or up to this year's ISA limit of £5,340.

The bad points

The expectations are the interest rates will rise in the next few months so you should only fix if you feel pretty sure that you'll be able to beat normal variable rates. If you decide to escape from this account in the first year, you'll be charged a stonking 180 days' interest, probably all the interest your cash has earned.

Conclusion

There are advantages to fixed rates in that you know how much interest you'll get, but the charges for withdrawing on the AA ISA means you'll probably be better off opening aflexible rate account and then switching to a better deal when rates rise. The AA, for instance, currently pays 3.35 per cent on its Internet easy-access ISA, while Santander is paying 3.3 per cent on its Flexible ISA Issue 3.