With interest rates at an all-time low, many people are turning to fixed-rate bonds to increase their income. But very often this can be short-term thinking.

Unless you are investing for a very short period of time, such as saving to pay for a holiday next year, you must think of the longer-term implications of your investment.

You have an annual ISA allowance of £7,200 (increasing to £10,200 in October for the over 50s and April next year for everyone else). Some of this money can be held in cash ISAs if you prefer. However, if you invest in a fixed-term bond, then if that bond can not be put into an ISA and you are not using your ISA allowance somewhere else, then you will lose out on this allowance. Remember, the ISA allowance is a use it or lose it arrangement. If you save into a fixed-rate bond and do not use your ISA allowance, you may receive a little more income now, but you are losing the tax free advantages of the ISA. Even if rates are low, tax at 20% makes a significant difference to the return, but it makes an even bigger difference as interest rates increase again, which, as sure as eggs is eggs, they will. Remember, at 4% the tax for a basic rate taxpayer is 1%. The impact on those paying tax at 40% is even higher.

Therefore, remember that it's OK to use a fixed-rate bond provided that you are still using your ISA allowances.