Investing For Growth: The discreet charms of the 'deathbed' Tessas
Sunday 14 February 1999
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.
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%
- 1 Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by police in Ohio park
- 2 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 3 Naked free runner captured in breathtaking photographs above London's streets
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Manchester United named Premier League's loudest fans despite late push by Chelsea according to 'Smart Meter' app
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by police in Ohio park
Heroin to be prescribed to Canadian addicts by doctors
Audacious North Korean kidnap plot foiled at Paris airport as 'Asian men' attempted to bundle student onto plane
Tower Bridge glass walkway 'smashed' by night-time visitor dropping bottle of beer
Revealed: the case against Bill Cosby – through the stories of his accusers
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
France 'blocks' Russian sailors from boarding a warship
Green Party Caroline Lucas interview: 'We could be on the edge of something very big'
iJobs Money & Business
Negotiable: Argyll Scott International: Hi All, I'm currently recruiting for t...
£50000 - £60000 per annum + benefits: Argyll Scott International: A Business A...
£30000 - £35000 per annum + benefits: Ashdown Group: PR Marketing & Events Exe...
$80000 - $110000 per annum, Benefits: Bonus and Employee Investment Scheme: Se...