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
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Sport
The Pipes and Drums of The Scottish Regiments perform during the Opening Ceremony for the Glasgow 2014 Commonwealth Games at Celtic Park on July 23, 2014 in Glasgow, Scotland.
Commonwealth GamesThe actor encouraged the one billion viewers of the event to donate to the children's charity
Sport
Karen Dunbar performs
Entertainers showcase local wit, talent and irrepressible spirit
Sport
Members of the Scotland deleagtion walk past during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
PROMOTED VIDEO
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
Life and Style
fashion Designs are part of feminist art project by a British student
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
News
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
News
i100
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
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

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game