Accounts that are spiced with stocks

TESSAS can be a convenient, tax-efficient way of making the best use of a deposit account. But rising share prices can leave savers wondering if their money might not be better invested in the stock market rather than sitting safely in a boring Tessa.

One way to get the best of both worlds is to invest in an equity-linked Tessa. These work just like any other Tessas but instead of the provider deciding how much interest you earn, returns are linked to the performance of the stock market.

"The main advantage of these Tessas is that you can potentially earn higher rates of interest," says Mark Dixon, head of product development at HSBC. "These Tessas allow the more adventurous investor to benefit from the added growth potential of stocks and shares."

Unlike most stock market investment, with an equity-linked Tessa there is no risk to your capital. If the market falls, your original investment is safe. In fact, most equity-linked Tessas guarantee a minimum return.

The amount of interest you eventually earn will depend on how well the stock market performs and the terms of the Tessa. Usually the FT-SE 100 index is used to calculate performance and there is often an upper limit on the amount of interest you can receive.

Equity-linked Tessas are issued in tranches, and are only available for a set period of time. Minimum investments are typically pounds 3,000 or pounds 9,000. These types of Tessas are being offered by Abbey National, Birmingham Midshires Building Society, Bristol & West and HSBC.

With the typical fixed-rate or variable-rate Tessa paying 7 to 8 per cent a year, a total return of 50 per cent on an equity-linked Tessa, which averages out at 10 per cent a year, looks attractive. But there are no guarantees the equity-linked Tessa will achieve this and the minimum returns can look less impressive.

"A minimum return of 20 per cent on a Tessa, is worth 4 per cent a year," points out Mark Howard, managing director of independent financial advisers Maddison Monetary Management. "For risk-averse investors these Tessas are not a good idea because you could end up with just the guaranteed minimum if the stock market crashed close to maturity. But the upside is that if the market moves forward you could benefit from above average Tessa returns."

The withdrawal penalties on all these Tessas are also stiff. So if you think you may not be able to keep your Tessa to maturity, don't invest.

q Contacts: Abbey National, 0800 100801); Birmingham Midshires, 01902 302883; Bristol & West, 0800 202121; HSBC, 0800 289505.

Life and Style
Customers can get their caffeine fix on the move
food + drink
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
PROMOTED VIDEO
Arts and Entertainment
Flat out: Michael Flatley will return to the stage in his show Lord Of The Dance
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
News
Jermain Defoe got loads of custard
i100
News
peoplePamela Anderson rejects ice bucket challenge because of ALS experiments on animals
Arts and Entertainment
tvExecutive says content is not 'without any purpose'
News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
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.

iJobs Job Widget
iJobs Money & Business

Business Analyst

£250 - £350 per day: Orgtel: Business Analyst, Bristol, Banking, Business Obje...

Trainee Recruitment Consultant - IT

£20000 - £25000 per annum + OTE £40,000: SThree: Computer Futures has been est...

Generalist HR Administrator, Tunbridge Wells, Kent - £28,000.

£25000 - £28000 per annum: Ashdown Group: Generalist HR Administrator - Tunbri...

Application Support - Enterprise Java, SQL, Oracle, SQL Server

£45000 - £55000 per annum: Harrington Starr: A well-established financial soft...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape