Tessa investors find the best offers sold out

Savings: Improved returns from endowments, but Tessa holders miss the chance of top-rate roll-overs

CLIFFORD GERMAN

Thousands of investors are complaining that they have missed the opportunity to reinvest money in maturing Tessas at favourable rates of interest. Up to 2 million tax-free Tessa accounts - containing at least pounds 20bn - will mature in the first six months of this year, but just 10 days after the first accounts started to mature confusion and disappointment are spreading.

TSB - which offered investors with pounds 9,000 to reinvest a guaranteed rate of 7.64 per cent tax-free for five years - sold out the pounds 25m offer within 48 hours. Thousands of disappointed investors who did not take the "limited offer" warning seriously are now being offered the reduced rate of 7.22 per cent.

Britannia Building Society has also withdrawn its replacement Tessa offering 7.65 per cent net fixed for five years and replaced it with a second tranche offering 7.25 per cent. One investor who contacted the Independent applied for TSB and Britannia and in both cases was told he was too late.

He has gone instead to Northern Rock, whose new fixed rate Tessa offering 7.64 per cent has not yet sold out, perhaps because of the penalty it imposes - 180 days' loss of interest plus a fee of pounds 30 if investors change their minds and want to switch to another account within the next five years.

There have been cases of investors being told wrongly at branch level that they should have applied for a roll-over account before their existing Tessa matured and they are no longer eligible.

Banks and building societies started writing well before Christmas to their Tessa investors, explaining that accounts can be rolled over into a new Tessa as they mature. This new account can be opened with the existing provider, or the funds can be transferred without penalty to a new Tessa with another institution.

The interest accumulated - which on the maximum permitted investment of pounds 9,000 can reach up to pounds 3,500 after five years - cannot be put into the new Tessa.

Investors who make no immediate decision on reinvestment have their Tessa funds transferred to conventional accounts as they mature. These earn interest which becomes liable to tax, but the funds can be left for up to six months and still be eligible for a new Tessa. Those transferring to a different provider get a certificate of eligibility.

Investors were invited to apply for a new Tessa up to three months before their Tessa matured. But the future trend of interest rates is far from clear, creating the maximum uncertainty for investors over whether to go for a fixed or variable rate, and whether to grab existing rates or take advantage of the six-month grace before reinvesting

Not all providers were able to say precisely what rates of interest they would be offering, and many, including TSB, asked for a reservation fee of pounds 50 - which was refundable only if a new Tessa was actually taken out with the same provider.