Roll over into a new Tessa - or death awaits

Investors who snapped up Tessas but have since dithered, will lose out, says Clifford German

The early birds who took out TESSA plans as soon as they were introduced in 1991 face sudden death from this month onwards, if their accounts matured in the early weeks of 1996 and they have not yet decided whether to roll the capital over into a new Tessa.

Tessa rules allow investors to keep the proceeds of their first Tessas for six months before deciding whether they want to commit the money for a further five years in order to secure the offer of tax-free income, or redeploy the money elsewhere. If they have not decided by the end of that time they can no longer roll the money over and have to start a new Tessa from scratch.

When the first Tessas were taken out in 1991, interest rates of 12 per cent, tax-free, were available, and the great majority of savers opted for variable-rate accounts. But rates quickly began to fall and, when the accounts began to mature, they were paying rates of barely half what they were when they started. Most providers offered significantly higher rates for maturing Tessas rolled over into new ones, however, and most holders dutifully rolled the capital over regardless. (A significant minority went for rates fixed for the full five years).

But a minority of free spirits allowed their money to be switched into conventional taxable accounts in the hope that interest rates would start rising and make Tessas look more attractive. They have not, but anyone wanting a roll-over Tessa should watch the calendar closely.