Tax-Exempt Special Savings Account: Beware of giving away a penalty

Watch out for the charges if you want to transfer to a new Tessa, warns Simon Read

When Chelsea Football Club paid out pounds 4.9m before Christmas for Italian star Gianfranco Zola, the transfer fee was justified by the impact he had on the team, most notably in helping to turn a 0-2 deficit into a 4-2 win against Liverpool in the FA Cup last weekend. In such cases the transfer fee produces better performances and better returns.

The same can be true of Tessas: splashing out on a transfer fee may get you a better product, with the promise of better returns. But watch out for the penalties.

The research firm HSW reports that over one year the top-performing Tessa comes from Cheshire building society, closely followed by Cheltenham & Gloucester. Over five years, however, the Cheshire drops to fourth place while C&G only just manages to scrape into the top 10. Leading the way over five years is National Counties, which only comes 12th in the one-year performance tables.

This means that if you are a sensible saver, you will keep a regular check on your Tessa - and an eye on the rest of the market - to make sure it's still giving you the performance you want. If it's not then you should consider the transfer option. But before rushing ahead with your transfer, check the transfer charges.

According to Moneyfacts, another firm of analysts, the highest-paying first Tessas currently available are all fixed-rate and come from Sun Banking Corporation, NatWest and Yorkshire Building Society. These rates are guaranteed, but for savers in these Tessas there is the risk that if rates generally rise, the return could be out of step with what's available elsewhere.

After 12 months, say, you may discover that you could get a better rate by switching. That said, given the transfer penalties on these Tessas, it is unlikely to be worthwhile. Sun Banking Corporation requires six months' notice and charges six months' interest, while both NatWest and Yorkshire Building Society charge 180 days' interest.

Variable-rate Tessas may also carry harsh transfer penalties Of the current top rates on offer, Investec Bank will charge you two months' interest and a pounds 25 fee, West Bromwich Building Society requires 28 days' notice and charges a pounds 30 fee, and the Principality Building Society charges 30 days' interest.

And that's not all. On top of the charges you may discover that your chosen Tessa won't let you in; Tessa providers have the right to reject transfers and many do so.

The top three fixed- rate deals all refuse transfers as do many variable- rate accounts, such as those offered by the Birmingham Midshires, Tipton & Coseley, and Melton Mowbray building societies.

All this means that before chasing better rates you must check the terms and conditions of your existing Tessa and your chosen Tessa to see whether the transfer is both allowed and cost-effective.