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Take a closer look at Tessa terms

Tessas have been given a new lease of life - but some are looking livelier than others.

When the original Tax Exempt Special Savings Accounts reach maturity in January 1996, savers will now be able to roll over the £9,000 invested into another account as a lump sum. Extra money accrued as interest on the investment over its five-year lifespan cannot, however, be included.

First launched in 1991, Tessas still represent good value with low risk for taxpayers. Provided money stays in the account for the full five years, interest is paid gross. Bristol & West (Asset)'s current rate of 7 per cent equates to 11.66 per cent on a taxable account for a higher-rate taxpayer and 9.33 per cent for a basic-rate payer.

Graham Hooper of Chase de Vere warns savers to keep a close check on their Tessa, to ensure they are getting best rates available.

"The difference between National & Provincial and Nationwide Tessa performance since 1991 is £1,000, a huge amount," he said. (See table).

Many savers are unaware they have the option to take advantage of better rates offered elsewhere without losing tax-free status. Switching money from one Tessa provider to another is straightforward.

Some schemes, however, have heavy exit penalties to deter these movements. Barclays Bank's fixed-rate Tessa charges three months loss of interest. Others ask for a £25 administration fee.

On the incentive side, Halifax and Woolwich building societies have tempting bonuses payable on the schemes' anniversaries, to maintain customer loyalty.

Hooper advises those considering a new Tessa to check for onerous exit conditions. Higher-rate schemes incur the heaviest charges.

New investors should also investigate the interest-rate history to date, from 1991. Consistently competitive rates are the best indicator of sturdy future performance.

Here Stroud & Swindon, Hinckley & Rugby, Bristol & West (Asset) and Dunfermline Building Societies all get an honourable mention.


Top 10 biggest building societies current value of Tessas to date

Society Value £*

National & Provincial 11,666.00

Woolwich 11,412.57

Britannia 11,338.87

Cheltenham & Gloucester 11,276.00

The Leeds 11,240.05 (1)

Alliance & Leicester 11,225.82

Halifax 11,155.82 (2)

Bradford & Bingley 11,179.14 (3)

Bristol & West 11,018.08 (4)

Nationwide 10,613.77

* Value from 1/1/91to 31 March 1995, with max £3,000 deposit in first year, and max £1,800 yearly for following three years.

(1) 1.50% bonus on £3,000 earned in first year paid at end of year five

(2) A £337 bonus has also accrued however this amount is not available until maturity.

(3) Extra 1.00% per cent bonus on the balance accrued at the end of each year paid on maturity. Figure to date stands at £11,460.03.

(4) £500 Maturity bonus paid in year 5.