What should you do with your Tessa?

By THIS IS MONEY
Updated:

 

Time is running out for Tessas, leaving thousands of savers each month having to decide what to do with their maturing accounts.

Plans taken out in 1994 are now coming to the end of their five-year term. While no new Tessas can be opened, savers who want to continue to earn tax-free interest may still do so through a little known add-on to the Isa rules.

The bonus comes through the 'Tessa-only Isa' which stands apart from other Isa arrangements.

Ian Millward, partner at independent financial adviser Chase de Vere in Bath, Somerset, says the Tessa-only Isa is likely to be a good choice for those who do not have to spend their Tessa proceeds.

'You can put the capital, but not the interest earned, from a maturing Tessa into this special Isa without affecting your allowances in another mini or maxi Isa,' he says.

'This means you are allowed to keep more savings growing tax-free. Product providers are trying to attract new money, so the headline interest rates on these Isa accounts tend to be good.'

It is worth trying to take advantage of competition in the marketplace since the rules allow those with maturing Tessas to shop around for Tessa-only Isas. Savers do not have to stick with their existing providers.

But while many banks and building societies are chasing people who plan to open their first Tessa-only Isas, this generosity will not last. Some will penalise investors who switch to another Tessa-only Isa provider in the future, while others refuse to accept transfers in.

Millward says: 'It is important to choose a provider that pays a good rate and has a history of keeping its offerings competitive.'

Research from Money-facts magazine shows that of the mainstream providers, Coventry building society has one of the best rates - 6.55% with instant access.

Little known Shepshed building society based in Leicestershire offers 6.6% on all balances but requires 60 days' notice for withdrawals and a minimum investment of £1,000 from non-locals.

Yorkshire building society pays 6.5% with seven days' notice and Portman pays 6.3% with 90 days' notice, though this rate includes a bonus of 0.5% which ends on July 1, 2000.

Moneyfacts' research shows other best buys come from smaller regional societies rather than big banks.

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