Abbey payouts mean new habits

Savers must decide what to do with this week's takeover windfall.

More than a million savers are facing the question this week: what to do with their windfall from Abbey National's takeover of National & Provincial. Half of N&P's 1.3 million members who qualified for a payout asked for hard cash, while the others asked for Abbey shares. Whichever you wanted, it should have arrived within the last few days.

If you should have received a payout and haven't, check with your local branch with- out delay. Likewise, if you have suffered from "hiccups" during the transfer, make sure that your local branch manager is aware of the problem.

If you got cash, the choice is relatively simple. Spenders will probably not need any advice. But if you want to hang on to the money, what are the options?

If your rainy day is likely to come any time soon, then the wise course would probably be to keep it in a savings account with the Abbey or one of the other high street names. Remember though that better rates can be obtained from notice accounts. First National, for example, offers 5 per cent on its 90 Day Notice account, which is available only by post, with a minimum balance of pounds 500. But, of course you will lose interest if you need the money urgently.

If you are already a regular saver, and intend to use the Abbey payout to supplement your savings, now could be the time to think about a Tessa. These are available from just about every financial institution in the High Street. You pay no tax on the interest - provided that you don't touch the cash for the next five years. Top Tessas with low minimum deposits include Bank of Ireland or the Birmingham Midshires and Tipton & Coseley building societies. All pay 7.25 per cent, with minimum deposits ranging from pounds 1 to pounds 1,000.

If you took your bonus in shares, the situation is more complicated. Your future dividends will now be subject to tax if you simply keep the shares. The easy solution is to put the shares into Abbey's Single Company PEP, sit back and collect the dividends tax-free. However, if the value of your shares is less than pounds 1,000, you will need to top up with cash, since this is the minimum investment in the plan.

If you want a wider spread of investments, Abbey also operates a general PEP which invests in a basket of 80 leading shares. Again, the minimum investment of pounds 1,000 applies. In both cases, the fee for transferring your shares is pounds 15, and any cash you put in will attract a further charge. In either case, the final date for applications to transfer in on these terms is the close of business on Friday, so you really need to make the decision by tomorrow at the latest, and make sure the paperwork is handed in at the branch before Friday's close of business.

If you want to start a "savings PEP" into which you make regular monthly contributions, your windfall shares can also be used as a start-up payment. For investors who already have a PEP managed by someone other than Abbey National, ask your provider if you can trans- fer your Abbey shares into it. Policies and charges vary; Barclays Stockbrokers, for example, will take your Abbey shares free of charge into its Select PEP, and if you have any other equity stakes which are not in a PEP, these can also be put into the plan; but there will be a charge. Similar terms are offered by other providers, including ShareLink, the execution-only stockbroking service.