Investing For Growth: The discreet charms of the 'deathbed' Tessas

THEY may have come under a lot of flak in recent times for offering scant reward, but the death of the Tessa has been exaggerated. Investors who expect modest but tax-free returns should look for a Tessa before these savings plans disappear in April.

Run by banks and building societies, a Tessa is a savings account which pays gross (pre-tax) interest. Left to grow for five years, it provides a tidy lump sum on maturity without any of the headaches associated with stock market investments.

After 5 April, the Government will prevent any more Tessa accounts being opened, but existing plans will be left for the full five years. It is worth sparing a few pounds to get a Tessa up and running. Then you have the option to invest as little or as much as you like so long as you don't exceed the annual maximum.

But if you are paying in the full annual amount - and some providers will not accept smaller sums - you may find you can get better rates of interest elsewhere. So it is a good idea to check the rules before you open your Tessa.

The annual limits allowed by the government are pounds 3,000 in the first year; pounds 1,800 in years two to five and pounds 600 extra if you have paid in the full amount in the first four years.

Over the five years, it adds up to a maximum of pounds 9,000. If you miss out on your allowance one year, you can't make it up later on. When you reach the end of the five-year term you have the option of rolling the capital into an individual savings account.

But beware: most Tessas have a variable interest rate which doesn't work in your favour. When the base rate goes up, the Tessa rate can increase by a small amount; on the other hand, if the base rate drops, the bank or building society will almost certainly cut its Tessa rate below the new base rate. So it is strongly advisable to insist on seeing the interest rate track record of the Tessa you are thinking of buying. It is also advisable to compare actual Tessa maturity values between different providers (see box on left).

There are also fixed-rate Tessas which lock into an interest rate at the outset. Because interest rates have further to fall, Tessas have had something of a resurgence. Also look out for loyalty bonuses and transfer penalties.

Some of the best Tessa rates come from local building societies, but there are conditions and restrictions on some of these accounts. Darlington Building Society pays 7.45 per cent but insists on a minimum investment of pounds 1,000 from people who don't live near Darlington; Staffordshire (7.6 per cent) insists on a minimum investment of pounds 2,500 from non-locals; SAGA (run by Birmingham Midshires) pays 7.5 per cent but is only open to over 50s. You may have to opt for what is on offer from the big players with a national presence.

Alternative low-risk investments

Building society fixed-rate bonds and term accounts offer a fixed rate of interest over a specified term. You know exactly what you are getting but they are not tax-exempt and, of course, if interest rates rise you will not benefit.

There are also various ultra-safe National Savings accounts run by the government. For instance, with the Ordinary Account the minimum investment is a manageable pounds 10 and the maximum is pounds 10,000. Interest is paid yearly. There is no notice required for withdrawal, but the downside is that the interest starts at a paltry 2 per cent. However, the first pounds 70 of annual interest is taken free of tax. The Investment Account offers a more attractive 4.20 per cent interest for pounds 20-pounds 500 and 5.75 per cent for pounds 50,000 and over. Interest is paid yearly gross but is liable to tax and has to be declared.

For up-to-date Tessa rates from Moneyfacts, call 01603 476476.

top tessas

The current top five nationally available variable rates (based on investing pounds 1,000).

Skipton BS 7.40%

Legal & General Bank 7.10%

Principality BS 6.95%

Lambeth BS 6.95%

Yorkshire BS 6.85%

Source: Moneyfacts

Suggested Topics
Sport
sportGareth Bale, Carl Froch and Kelly Gallagher also in the mix for award
News
Japan's Suntory Beverage & Food has bought GlaxoSmithKline's Lucozade and Ribena
news
News
A tongue-eating louse (not the one Mr Poli found)
newsParasitic louse appeared inside unfilleted sea bass
Life and Style
The reindeer pen at the attraction
lifeLaurence Llewelyn-Bowen's 'Magical Journey' and other winter blunderlands
PROMOTED VIDEO
News
The illusionist believes hypnotism helped him to deal with the lack of control he felt growing up
people
Life and Style
Out and about: for 'Glee' character Bert Hummel, having a gay son was a learning curve
lifeEven 'cool' parents need help parenting gay teens
Sport
Nathaniel Clyne celebrates after salvaging a point with the Southampton equaliser
footballAston Villa vs Southampton report
News
peopleJack Monroe accuses David Cameron of 'misty-eyed rhetoric'
News
Tana Ramsay gave evidence in a legal action in which her husband, Gordon, is accusing her father, Christopher Hutcheson, of using a ghost writer machine to “forge” his signature
peopleTana Ramsay said alleged discovery was 'extremely distressing'
Arts and Entertainment
Robin Windsor and Aljaz Skorjanec rehearse their same-sex dance together on Strictly Come Dancing
TV
News
ebooksNow available in paperback
Money
Anyone over the age of 40 seeking a loan with a standard term of 25 years will be borrowing beyond a normal retirement age of 65, and is liable to find their options restricted
propertyAnd it's even worse if you're 40
Arts and Entertainment
Perhaps longest awaited is the adaptation of Jack Kerouac’s On the Road with Brazil’s Walter Salles directing and Sam Riley, Kristen Stewart and Viggo Mortensen as the Beat-era outsiders
books
Arts and Entertainment
theatreSinger to join cast of his Broadway show after The Last Ship flounders at the box office
Life and Style
fashion'To start singing with Pharrell is not that bad, no?'
News
news
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

Argyll Scott International: Risk Assurance Manager

Negotiable: Argyll Scott International: Hi All, I'm currently recruiting for t...

Argyll Scott International: Business Analyst - MGA - London Market - Insurance Broker

£50000 - £60000 per annum + benefits: Argyll Scott International: A Business A...

Ashdown Group: PR, Marketing & Events Executive - Southwark, London - £35,000

£30000 - £35000 per annum + benefits: Ashdown Group: PR Marketing & Events Exe...

Selby Jennings: C++ Developer – Hedge Fund – New York

$80000 - $110000 per annum, Benefits: Bonus and Employee Investment Scheme: Se...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible