Warning on PEP and Tessa frenzy

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The Independent Online
BANKS, BUILDING societies and record shops will be open this bank holiday weekend to deal with the rush of last-minute customers hoping to beat the deadline of midnight on Monday for buying the tax- advantageous savings products, Tessas and PEPs.

But City analysts are warning savers not to make rash decisions, as the replacement product, the individual saving account (ISA) may offer as good a deal.

Halifax is to open 100 branches, while Nationwide is opening 16 branches. Virgin Direct is offering a courier service for customers up to 8pm on Sunday, and forms can also be obtained at a number of Virgin Megastores. Gartmore, the investment arm of NatWest, is keeping its offices open until midnight.

Over the past week, as PEP money flooded in at four times the normal rate, the FTSE 100 index jumped by 5.2 per cent.

The rush has been prompted by fears that the end of PEPs and Tessas (tax-exempt special savings accounts) would spell the loss of tax incentives to save. The products have attracted more than pounds 100bn of savings since their launch in 1991. But the ISA, coming on-stream on Tuesday, will offer tax breaks that are at least as generous. Investment advisers are worried that savers are opening PEPs and Tessas because of these fears.

Roddy Kohn, of advisers Kohn Cougar, said: "The concern is that many of the buyers are basic-rate taxpayers who are being told to take out a PEP because if they don't they'll have missed their last chance. But ISAs have a better spread of investments than PEPs - you can invest anywhere in the world. And the tax-free limit for ISAs is pounds 7,000 against pounds 6,000 for PEPs... too many customers are making rash decisions."

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