Savers to net pounds 20bn bonanza

Tessas: 2 million people await the rewards from maturing accounts. Here and on pages 14 and 15, we outline their options

NEXT month sees the start of a staggering pounds 20bn savings bonanza for more than 2 million people - enough money for the Chancellor to knock 10p or more off basic-rate income tax.

A half or more of all tax-free Tessa accounts mature in the first half of next year, unlocking up to pounds 14,000 each for savers.

Tessas offer tax-free interest to savers of whatever tax band, so long as the accounts are held for five years.

A total of more than 4 million people have saved up to the maximum pounds 9,000 so far, and January sees the first Tessas come of age.

If you have an account, the bank or building society should write to you when it matures - if for no other reason than to offer to reinvest the money.

A full pounds 9,000 investment could be due between pounds 11,400 and pounds 14,000, as our league table of projected maturity values shows.

The top performer, Bristol & West building society's Capital Maker Tessa, might earn such pounds 9,000 savers more than pounds 5,000 in interest - an overall return of 56 per cent over the past five years. Bottom-of-the-pile Clydesdale Bank Tessas might give savers just pounds 2,400 in interest on their pounds 9,000, which translates into a total return of just 27 per cent. The average Tessa saver, however, has only saved pounds 6,000, so in practice payout figures are likely to be closer to pounds 8,000.

The best returns are set to be from Tessas that offered interest rates fixed at outset. But there were only a few of these, and most have plumped for Tessas whose rates could change once you were invested.

In 1991, when Tessas first became available, fixed-rate Tessas offering interest rates of 11.5 per cent did not look so attractive against variable- rate competition paying up to 15 per cent. Since 1991, however, interest rates generally have plunged and interest on most variable-rate Tessas has halved - and even fell below 5 per cent last year.

In addition, most savers will have missed out by saving with the big high-street names. The top performers among the variable-rate Tessas are all with smaller building societies and banks, and the main high street banks have been particularly bad performers. The TSB has been advertising itself to savers with maturing Tessas as "the bank that came first - top of the bank Tessa performance table". But this only compares it with the other banks - among all Tessa providers. it is set to produce below-average returns, our table shows.

Moneyfacts, which compiled our league table, says interest rates from societies started higher and have not come down as much as those of banks, which have been driven to a greater degree by the falling base rate.

Only 2,500 savers had the foresight or luck to invest in the best-performing variable-rate Tessa - from the small South-eastern building society Kent Reliance. Moneyfacts says the predominance of smaller societies among the top perfomers underlines the tendency for smaller operators to keep rates competitive longer. A number of high street names competed aggressively to get savers to open accounts with high rates, only to drop them after the initial surge.

The better performances from smaller societies and banks also reflect their need to offer higher rates to counter savers' worries of higher risk. Sometimes, the extra return is not worthwhile - one high-paying Tessa provider, the small London bank Wimbledon & South West Finance, went bust a few years ago.

Overall, says Charles Levett-Scrivener, product manager with independent financial adviser Towry Law, the performance of Tessas has been "very patchy" over their first five years.

HOW THEY ALL FARED

Bristol & West Capital Maker (F) pounds 14,036

Confederation Bank (F) pounds 13,357

AIB Bank Fixed Tessa pounds 13,333

Bristol & West Guaranteed (F) pounds 13,243

First Trust Bank pounds 13,128

Kent Reliance BS pounds 12,400

Dunfermline BS pounds 12,343

National Counties BS pounds 12,318

Julian Hodge Bank pounds 12,227

Melton Mowbray BS pounds 12,221

Ecology BS pounds 12,192

Ipswich BS pounds 12,187

West Bromwich BS pounds 12,183

Allied Trust Bank (Premier) pounds 12,172

Exeter Bank pounds 12,162

Saffron Walden BS pounds 12,151

Buckinghamshire BS pounds 12,140

Stafford Railway BS pounds 12,139

Tipton & Coseley BS pounds 12,128

Monmouthshire BS pounds 12,116

Darlington BS pounds 12,106

Bradford & Bingley (High Rtn) pounds 12,093

Cheshire BS pounds 12,091

Lambeth BS pounds 12,088

Derbyshire BS pounds 12,058

Vernon BS pounds 12,058

Progressive BS (NI) pounds 12,054

Marsden BS pounds 12,048

Cambridge BS pounds 12,046

Halifax BS pounds 12,041

Beverley BS pounds 12,039

Bristol & West Bonus pounds 12,019

Londonderry Provident BS pounds 12,013

Woolwich BS pounds 12,012

Mercantile BS pounds 12,002

Harpenden BS pounds 11,979

Leeds & Holbeck BS pounds 11,978

Furness BS pounds 11,977

Dudley BS pounds 11,976

Nottingham Imperial BS pounds 11,967

Mansfield BS pounds 11,963

Yorkshire BS pounds 11,960

Chesham BS pounds 11,959

Barnsley BS pounds 11,958

Nottingham BS pounds 11,952

Stroud & Swindon BS pounds 11,947

N&P BS pounds 11,946

Manchester BS pounds 11,935

Nationwide BS pounds 11,930

Skipton BS pounds 11,929

Britannia BS pounds 11,924

Loughborough BS pounds 11,921

Principality BS pounds 11,917

Hanley Economic BS pounds 11,910

TSB pounds 11,905

Bath BS pounds 11,901

Sun Banking Corporation pounds 11,895

Scottish BS pounds 11,895

Leek United BS pounds 11,884

Northern Rock BS pounds 11,878

Alliance & Leicester BS pounds 11,875

Cheltenham & Gloucester pounds 11,873

Royal Bank of Scotland pounds 11,870

Birmingham Midshires BS pounds 11,856

Norwich & Peterborough BS pounds 11,852

Newbury BS pounds 11,837

Universal BS pounds 11,834

Abbey National pounds 11,829

CLF Municipal Bank pounds 11,820

Newcastle BS pounds 11,813

Chelsea BS pounds 11,808

Portman BS pounds 11,788

Greenwich BS pounds 11,782

Co-operative Bank pounds 11,765

Staffordshire BS pounds 11,745

Northern Bank pounds 11,741

Market Harborough BS pounds 11,697

First Trust Bank pounds 11,696

Natwest Bank pounds 11,661

Yorkshire Bank pounds 11,635

Chorley & District BS pounds 11,599

Robert Fleming/S&P pounds 11,595

Coutts & Co pounds 11,545

Lloyds Bank pounds 11,533

First Direct pounds 11,496

Midland Bank pounds 11,493

Barclays Bank pounds 11,490

City & Metropolitan BS pounds 11,486

Clydesdale Bank pounds 11,419

The table shows the projected maturity values of Tessas, assuming the account was opened at the start of January 1991 with the maximum investment of pounds 3,000 and that maximum top-up investments were made on each anniversary during the five-year savings period. The figures, therefore, are the most savers will be due.

(F) means fixed rate. Other Tessas carry interest rates that have varied. BS stands for building society. Source: Moneyfacts