Banking on the right Tessa

A new generation Tessas has arrived, offering attractive rates of return. But, as always, there are catches. By Clifford German

The big banks and building societies have all now revealed their terms for the new generation of tax exempt special savings accounts. As every Tessa holder knows by now, the whole of the capital accumulated in the first generation of Tessas, up to the maximum holding of pounds 9,000, can be put back into a new Tessa, but the accumulated tax-free interest must be redeployed elsewhere.

Holders of maturing Tessas can roll over all or part of their capital with their existing provider, or transfer to a different one without penalty. Either way they have up to six months to do so. No one need rush to decide. But in order to ensure that the new account remains tax-free, anyone who does want to transfer rather than roll over more than pounds 3,000 needs to get a certificate of entitlement from the original supplier.

Tessas are not necessarily the best place to invest or even re-invest your money. Over the last five years investors would have done better on a corporate bond Pep (if they had existed), and on a personal equity plan invested in UK shares. But Tessas are super-safe and that is what matters most to many investors.

In general the bigger providers offer lower rates, relying on their name and reputation. The smaller providers - who ran away with the prizes for the best returns on first generation Tessas - are once again offering the best rates of return.

But interest rates offered on day one are not the only thing investors need to watch. Some rates are fixed for the full five years while others are liable to change. Rates vary according to the amount invested, and some are restricted to existing customers only. Others - like the Halifax, for example - tweak the basic rates with a maturity bonus which is payable at the end of five years. Another variation on the rates theme is to offer an escalating rate over five years.

Some institutions have opted for loyalty bonuses payable only to customers who have rolled over an existing Tessa, and a small number - including Lloyds Bank, Kleinwort Benson and Birmingham Midshires - offer optional returns which are linked to future stock market performance.

Most accounts allow holders to draw interest during the life of the Tessa but some either insist the interest accumulates or withhold the maturity bonus if holders want to draw it.

Investors must also watch out for transfer penalties, which like mortgage redemption penalties effectively lock customers in once they have opened their new account. Penalties can go as high as 180 days loss of interest on fixed-rate Tessas, if customers try to find a better rate elsewhere later on. Straightforward withdrawals are not penalised, although they do lose their tax-free status.

The highest rate on a variable rate Tessa of pounds 9,000 - the maximum sum which can be reinvested - is 8 per cent from Northern Rock, which initially offered 7.25 per cent before Christmas and then decided to lift its rates higher to establish itself as the market leader.

Elsewhere the best rate is 7.75 per cent from Cheltenham & Gloucester, which offers the same rate on amounts as low as pounds 1,000 - so long as they are renewing existing C&G Tessas. The transfer fee is also only pounds 30. National Counties pays 5 per cent on pounds 1,000 rising to 7.5 per cent on pounds 9,000 with a 90 day interest penalty. Bradford & Bingley offers 5.75 per cent on minimum sums of pounds 500 rising in steps to 6.75 per cent on pounds 9,000, but a maturity bonus of 0.75 per cent a year is also payable for investors who last the course, and only one month's notice without penalty is required to transfer. Birmingham Midshires offers 7.25 per cent on sums as small as pounds 3,000 but wants 180 days interest from transfers. Alliance & Leicester offers 7.25 per cent, but imposes 60 days loss of interest on transfers.

Natwest Bank pays the best rate among the clearing banks with 7.19 per cent compound on sums from pounds 5,000 upwards if interest is not drawn - but it charges 180 days interest on transfers. and does not allow additions after the first year.

Bristol & West pays 4.9 per cent on sums as small as pounds 500 rising in steps to 7 per cent on pounds 9,000 , and combines a maturity bonus of 1 per cent on the first year investment with a similar sum as a loyalty bonus for existing customers. Three months notice is required and three months loss of interest is charged on transfers.

Darlington Building Society offers 7.5 per cent to existing Tessa holders on sums as small as pounds 1 - but docks 60 days interest from transfers. Monmouthshire pays 7.6 per cent to roll-over customers on as little as pounds 1 and charges just one month's interest on transfers.

Some of the bigger players offer much less generous rates. Abbey National for example is offering just 6 per cent on sums of pounds 3,000 rising to 6.6 per cent on the maximum roll-over fund of pounds 9,000, while the Halifax is offering just 5.9 per cent, with a terminal bonus of 2.5 per cent if it is held to maturity, bringing the overall rate up to 7.4 per cent.

The best fixed rates on offer include 7.64 per cent fixed on pounds 9,000 from Northern Rock, but the penalty for transferring is 180 days interest plus a pounds 30 fee. West Bromwich offers 7.55 per cent fixed with 28 days notice and 180 days loss of interest to deter subsequent transfers.

Bradford & Bingley offers 7.5 per cent fixed, but one month's notice plus 180 days loss of interest is required for transfers. Barclays Bank pays 7.5 per cent fixed on amounts of pounds 7,500 upwards with a month's notice and a variable fee for early withdrawals. Sun Banking offers a 7.5 per cent fixed rate carrot on maximum amounts, and a 180 notice plus 180 days loss of interest stick on transfers.

Yorkshire Building Society offers 7.3 per cent to existing customers with the full amount to roll over with an 180 loss of interest in years one and two, dropping to 90 days thereafter. Only 7 per cent is paid by Abbey National's fixed rate account, but the withdrawal fee is only pounds 20.

Britannia Building Society offers 7.25 per cent fixed on the full pounds 9,000 to its existing Tessa holders and 7.15 per cent fixed to new investors but there is no transfer penalty and both get a 1 per cent bonus after a year. The Derbyshire offers 7.2 per cent fixed on full roll-overs from existing customers, but levies 180 days interest on transfers.

Compiled with the help of data analysts Moneyfacts and financial advisers Johnson Fry.

News
people
Arts and Entertainment
Armstrong, left, and Bain's writing credits include Peep Show, Fresh Meat, and The Old Guys
TVThe pair have presented their view of 21st-century foibles in shows such as Peep Show and Fresh Meat
Arts and Entertainment
Keys to success: Andrew and Julian Lloyd Webber
arts + entsMrs Bach had too many kids to write the great man's music, says Julian Lloyd Webber
Sport
footballMan City manager would have loved to have signed Argentine
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
people
News
i100
Arts and Entertainment
Hand out press photograph/film still from the movie Mad Max Fury Road (Downloaded from the Warner Bro's media site/Jasin Boland/© 2014 Warner Bros. Entertainment Inc.)
films'You have to try everything and it’s all a process of elimination, but ultimately you find your path'
Arts and Entertainment
Imelda Staunton as Dolores Umbridge in the Harry Potter films
books

New essay by JK Rowling went live on Pottermore site on Friday

News
people

Top Gear presenter is no stranger to foot-in-mouth controversy

News
Russia Today’s new UK channel began broadcasting yesterday. Discussions so far have included why Britons see Russia as ‘the bad guy’
news

New UK station Russia Today gives a very bizarre view of Britain

Arts and Entertainment
Keira Knightley and Benedict Cumberbatch at the premiere of The Imitation Game at the BFI London Film Festival
filmsKeira Knightley tried to miss The Imitation Game premiere to watch Bake Off
News
i100
Sport
Enner Valencia
footballStriker has enjoyed a rapid rise to fame via winning the title with ‘The Blue Ballet’ in Ecuador
Arts and Entertainment
A top literary agent has compared online giant Amazon to Isis
arts + entsAndrew Wylie has pulled no punches in criticism of Amazon
Arts and Entertainment
Charlie Sheen said he would
tv

Finacial products from our partners
Property search

How to cut the cost of car insurance: A five-step guide to getting a better deal

Premiums are on the rise again but motorists don't have to take a back seat on the price of their cover, says Rob Griffin

Shareholders can hold a company to account

Ever wanted to hold to account a company you invest in, but didn't know how to go about doing it? Simon Read shows how individual shareholders can make their voices heard

How shops make you spend: The subtle art of the savvy retailer revealed

'A third extra for free', gift sets, recommendations for a present for Grandpa - just some ways to make you pay more than you intended

Many people unwittingly end up invested in sectors at odds with their ethical beliefs.

Simon Read: It is time to think again about ethical money

The ethical investment industry is giving itself a makeover, but the problem seems to lie more with getting its message and its methods into the mainstream

Going down the wrong road: parking fines are
nudging people into debt difficulties

Charges related to car parking rising and leading to serious money woes

Going down the wrong road: parking fines are nudging people into debt difficulties

Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends

Mark Dampier: Woodford’s young companies could be the stars of the future

Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends

A trader works on the floor of the New York Stock Exchange

Simon Read: The markets might not be calm but you should be

Don't panic, it’s a wise idea to check investments regularly to ensure they are on target for your hoped-for returns

Only six per cent of the 13,000 new homes bought during Help to Buy’s first nine months were in London

Money Insider: Help to Buy must be boosted by building

With little or no wage growth being seen in the UK, increasing house-price inflation could see the number of first-time buyers slide further, unless there’s a new accelerated house building programme

House buyers can take their pick of more than 3,500 home loans, the most available since the financial crisis

Simon Read: Those cheap home loans may be built on shaky foundations

You should ignore the headline offers and trickery and work out the total cost of borrowing under different deals

Denise Leigh, who appeared in a production
of Rigoletto with Alan Opie, was left without an essential service

The opera singer, the broadband delay and why customers aren’t divas if they expect a good service

Denise Leigh, who appeared in a production of Rigoletto with Alan Opie, was left without an essential service

Problem debt adds £8bn cost to the economy

A charity has calculated the cost to us all of unmanageable debt – from lost productivity to the extra demands on the NHS

Payday loan stores are to face tougher regulations after moves proposed by the Financial Conduct Authority (FCA) call on more responsible lending

Calls for payday lenders to sign up to an officially recognised price comparison site

The regulators are at last tackling the high-profile payday lenders, but they appear to be ignoring the growing problem of internet loan firms

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    The benefits of Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    Trainee Recruitment Consultants

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Finance Assistant - Part time - 9 month FTC

    £20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

    Marketing Manager

    £40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

    Day In a Page

    Bryan Adams' heartstopping images of wounded British soldiers to go on show at Somerset House

    Bryan Adams' images of wounded soldiers

    Taken over the course of four years, Adams' portraits are an astonishing document of the aftermath of war
    The drugs revolution starts now as MPs agree its high time for change

    The drugs revolution starts now as MPs agree its high time for change

    Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
    The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

    Gotcha! The camera is turned on tabloid editors

    Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
    Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

    Fall of the Berlin Wall

    It was thanks to Gorbachev that this symbol of division fell
    Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

    What makes ouija boards and demon dolls scary?

    Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
    A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

    Rose Rouse's safari in modern Britain

    Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
    Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

    'My world of no smell and odd tastes'

    A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

    Matt Parker is proud of his square roots

    The "stand-up mathematician" is using comedy nights to preach maths to big audiences
    Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

    Paul Scholes column

    Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
    Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

    Frank Warren column

    Call me an old git, but I just can't see that there's a place for women’s boxing
    Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

    Adrian Heath's American dream...

    Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
    Simon Hart: Manchester City will rise again but they need to change their attitude

    Manchester City will rise again but they need to change their attitude

    Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
    Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

    A Syrian general speaks

    A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities