Make the most of the Tessa loophole that has opened

As with all new savings environments, the ISA will both remove opportunities to maximise your income or capital and open up fresh ones.

Perhaps the most significant one is the loophole that appears to have opened up on the Tessa front. As the main piece describes, it will be possible to keep Tessas to the end of their five-year life, beyond the April 1999 start-up date for ISAs.

At maturity, you shift the money into the ISA, subject to the pounds 50,000 limit. Unfortunately, it is not yet clear whether payments into the Tessa will be allowed to continue beyond then. But even the pounds 4,800 maximum that can be invested before then should mature into a tidy sum.

The Government's consultative document implies that transferring interest from the Tessa into the ISA will not be possible. Here, it may be possible to make use of several flexible mortgage products.

Take the Legal & General Flexible Reserve mortgage. It currently charges a variable rate of 7.95 per cent. You agree a monthly mortgage payment on which interest is calculated daily, allowing for speedier capital repayments.

At the same time, sums repaid over and above this amount go into a "parallel account". This pays interest at the variable rate charged on the mortgage itself.

By leaving the money in there (and transferring the interest from your Tessa) until you have built up enough funds to pay off the loan, you will continue to earn 7.95 per cent net of tax, equivalent to 12.72 per cent gross for higher rate taxpayers, or 9.77 per cent for those on basic rate tax.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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