FEAR OF FINANCE

Some juicy plums are being dangled in front of investors to persuade them to roll over the capital on their maturing Tessas (Tax Exempt Special Savings Accounts) for another five years with the same lender, or to switch to someone making a better offer.

Investors with the maximum maturing sum of pounds 9,000 can start a second Tessa on 8 per cent at Northern Rock, which tops the previous best offers of 7.5 per cent at Allied Trust Bank and 7.25 per cent from the Cheltenham & Gloucester, or take a fixed rate of 7.64 per cent at the TSB for the next five years. This has topped the previous best fixed rate of 7.25 per cent on a minimum of pounds 8,575 available from Sun Banking Corporation, a subsidiary of Sun Life of Canada.

Good rates, according to MoneyFacts the subscription guide to best investments, are also offered on smaller sums. Birmingham & Midshires pays 7.25 per cent on upwards of pounds 3,000 in a new variable rate Tessa or 7.05 per cent on similar sums fixed for five years. Universal Building Society offers 7.1 per cent on amounts as small as pounds 1.

These are just the latest indications of the efforts of Tessa providers to persuade existing account holders roll their Tessas over and other holders transfer across. The amounts involved are simply staggering, and even after the expected spending spree the opportunities for investment providers are huge. But the efforts to hold onto Tessas contrast strongly with the downward trend in rates available on other savings accounts. In the past few days Abbey National, Leeds & Holbeck, Bristol & West, Sun Banking, Melton Mowbray and the Newcastle building societies have reduced rates on most other accounts across the board. The cuts reflect the downward trend in lending rates, but the importance of retaining Tessa money suggests providers are also trying to rob other savers to pay Tessa account-holders to re-invest.

Once reinvested Tessas have to be kept for five years or lose tax-free status. Some providers also charge transfer fees to discourage withdrawals. Providers may be tempted to shift the balance to other savers once the Tessas are safely locked in. Holders of maturing Tessas have six months to decide on renewal. A short-term alternative, or taking up a fixed- rate Tessa now, may be worth considering. But who knows where rates will be in 2001.

Corporate bond PEPS offer little advantage in current yields but investors are not locked in for five years to get a tax-free investment, and bonds will provide some capital gain if interest rates fall rather than rise. Guaranteed stock market bonds offer varying combinations of guaranteed return and exposure to stock exchange growth, and the real speculators will keep a few hundred in hand for a punt on Railtrack.