Tessas taken for granted
Tax-free investments they may be but interest rate rises are passing savers by, writes Steve Lodge
Sunday 31 August 1997
But many thousands of tax-free Tessa savers are finding that they are missing out on much of the good news. Some banks and building societies are failing to pass on interest rate rises in full or even not increasing Tessa rates at all, at the same time, of course, as pushing up mortgage costs significantly. A handful of Tessas from some banks and recently converted societies are now so low that savers might be better off in accounts where they pay tax on the interest. And even among societies that proclaim that as mutuals they give savers a better deal, some appear to be taking advantage of Tessa customers, who are generally more locked in than other savers, by offering good starter rates that then become less competitive.
For example, West Bromwich building society, which claims its Tessa was until recently a "best buy" and which has attracted tens of thousands of savers, has not increased its rate of 7 per cent all year. Its rate is now no better than average and the highest payers are giving around 7.5 per cent, as our Best Savings Rates table on page 13 shows. West Bromwich said it was reviewing rates but could not give details. Meanwhile, as with other lenders, the society has been pushing its mortgage rate ever higher - the latest increase, 0.5 per cent, takes it to 8.45 per cent.
Coventry building society, one of the biggest remaining societies, which last week announced reduced profits and claimed that this reflected the better deal it was giving to savers and borrowers, has given Tessa savers a series of small increases this summer. But even including a 0.2 per cent rise due from this week to 7.2 per cent, it will have raised rates a total of just 0.55 per cent this year, compared with the 1 per cent rise in base rates and a similar increase in its own mortgage rates.
John Thomson, Coventry's deputy chief executive, accepted that Tessa savers were not sharing in rate increases to the degree some other savers were. He said that if, after the latest round of increases, the society's Tessa rates were uncompetitive, it would look again.
Savers with Manchester building society might feel particularly disgruntled. While they too have seen rate rises of just 0.5 per cent this year, this is only to 6.25 per cent and rates are still well below where they were at the beginning of 1996.
"The trouble is they don't need to get the money in now," says Vicki Burn of Moneyfacts, which monitors rate movements, contrasting how rates increases are presently lagging and the higher rates paid by some institutions back in 1996.
Northern Rock, the society soon to become a bank, then paying 8 per cent and last week paying 7.05 per cent on second-generation Tessas, and C&G, the ex-society, then paying 7.75 per cent and last week paying 7.2 per cent, were prime examples of organisations offering artificially high rates to pull in savers. On second-generation Tessas C&G still looks competitive. But its rates for new Tessa savers are now so low that savers would be better off in its top-paying Instant Transfer account, even after paying tax on the interest, assuming they are basic rate taxpayers. Instant Transfer is paying a before-tax rate of 7 per cent from this week on balances of pounds 1,000 upwards. After basic rate tax that equates to 5.6 per cent, which compares with just 5.4 per cent C&G pays on new Tessas. Moreover whereas savings in Instant Transfer can be accessed without penalty by transferring to a bank account, only a proportion of the interest on a Tessa can be withdrawn each year without penalty. To get the full benefits of tax-free savings, savers have to leave their the vast majority of their money untouched for five years.
Savers with dud Tessas are allowed to transfer them without loss of tax benefits, but in most cases they will find they face penalties from the institution they are leaving, and in some cases these are severe. C&G charges pounds 30, while Bristol & West requires three months' notice and deducts the interest that would have been earned in that period.
Manchester building society requires 14 days' notice and deducts the interest, while the Coventry, unusually, has no penalty and just asks for seven days' notice.
Savers picking a Tessa should consider the penalties for transferring or closing account early. In theory lower penalties should exert a pressure on banks and societies to keep rates competitive.
For full details of all Tessas, Moneyfacts, which supplies our Best Savings Rates table on page 13, will send readers a free copy of its latest monthly publication. Call 01692 500765.
27 March 2015 08:30 PM
20 March 2015 07:30 PM
How to make the most of Isas: You can save more money now, the returns are tax-free and the rules are flexible
20 March 2015 07:30 PM
13 March 2015 09:00 PM
13 March 2015 09:00 PM
10 March 2015 09:03 AM
The Financial Conduct Authority found non-compliance in all reviewed firms
11 March 2015 11:38 AM
Pension expert John Lawson talks on why improved longevity is something to plan for carefully
06 March 2015 08:30 PM
02 March 2015 10:50 AM
The DWP and the FCA have joined forces to investigate transaction charges in occupational pension schemes
04 March 2015 03:00 PM
The company was found to have unacceptably long call waiting times
27 February 2015 07:30 PM
27 February 2015 07:30 PM
27 February 2015 12:01 AM
The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter
Hooray, you're going to live longer! But what should you do to celebrate?
Debt in Britain: Numbers seeking help on how to cope with mounting bills goes up by more than half in three years
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Questions of Cash: Why was my case ignored by My Civil Service Pension?
Offset your mortgage and save thousands
- 1 Finland schools: Subjects scrapped and replaced with 'topics' as country reforms its education system
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 Watch: Man takes selfie every mile of 2,600 mile hike, creates amazing timelapse video
- 4 The day I starred in Only Fools and Horses
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Revealed: Putin's army of pro-Kremlin bloggers
Germanwings plane crash: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station