Best bets for your Tessas

TAX-FREE Tessa rates have come down since the first splurge of offers in the New Year for people with maturing Tessas. But you can still get as high as 8 per cent. Fixed-rate deals are surviving better, according to Alistair Altham of Johnson Fry, which offers a free "Tessa Directory" (0171-451 1200). Rates on other Tessas that can rise and fall - called variable rate - have in many cases fallen by up to 0.5 per cent.

The table (right) shows the best rates currently available for savers with maturing Tessas and for those who have never had a Tessa. Maturing Tessa holders, who put the full pounds 9,000 into their first Tessa, can get a variable rate of 8 per cent from Northern Rock. The highest quoted fixed rate for "rollover" Tessas - again only for those who put the full pounds 9,000 in at the start - is 7.4 per cent from Clydesdale Bank, although this figure is potentially misleading. Interest is not compounded - so allowing you to earn interest on the interest - which means the rate looks unfairly favourable. Nevertheless it's still good and existing Clydesdale Tessa savers get a boosted rate of 8 per cent.

Banks and societies report significant investment in fixed rate Tessas. But many pundits believe the choice between fixed and variable rate is much more finely balanced because interest rates are now much lower and there is little expectation of a big rise or fall in the next five years.

Be aware, too, of the penalties for transferring your Tessa to another society or bank during the account's five year life, or indeed any penalties for closing the account early. Mr Altham recommends choosing an account with minimal transfer penalties. The rate may look good now, but if it becomes uncompetitive in the future, savers can vote with their feet. One Tessa with no transfer penalty comes from Dunfermline building society, paying 7.2 per cent variable.

Separately - despite having high transfer penalties - Johnson Fry highlight a Tessa from Bristol & West offering the greater of 20 per cent or the rise in the stockmarket over five years. This Tessa - only available to savers who put pounds 9,000 into their original - offers a loyalty bonus of pounds 90 at maturity. With the Bristol & West remaining a favourite for take over, it also offers a potential windfall.