Sun rises on fixed Tessas

FIXED-RATE Tax-Exempt Special Savings Account offers could be set to return to more than 7.5 per cent, according to Sun Banking Corporation, which tomorrow launches a market-topping fixed-rate deal paying 7.4 per cent for follow-on Tessa savers with pounds 9,000 to invest.

Recent jitters in bond markets mean that the longer-term interest rates on which fixed-rate Tessa deals are based have risen by nearly half a per cent. That stands in contrast to the Chancellor's latest 0.25 per cent cut in base rates to 6 per cent, which is likely to feed through into cuts in the interest offered on variable-rate Tessas.

Although a relatively unknown name, Sun Banking Corporation is the banking arm of the better-known Sun Life of Canada. It can be contacted on 01438 744505.

A rate of 7.4 per cent is not as high as the very best fixed-rate offers available when the first rash of Tessa 2s were launched in January.

However, it is arguably more sustainable because of the change in interest rates in the bond market. Liam Hare, of Sun Banking Corporation, said it might be possible to increase its fixed-rate offer further, though not at present. Other Tessa providers might well also increase their fixed- rate offers.

Certainly, existing fixed-rate Tessa deals should prove more sustainable, particularly compared with the interest offered on variable-rate deals.

While Tessa rates have tended to hold up better than interest rates on other saving accounts in recent months, rates in general are still down by perhaps half a per cent since January.

Johnson Fry, the investment firm, will send a free Tessa Directory listing rates and conditions. Ring 0171-451 1200.

Follow-on Tessas

Minimum Rate % Transfer interest deposit penalty

Sun Banking Corp pounds 9,000 7.40F 180 days

Yorkshire pounds 9,000 7.30F Up to 180 days

West Bromwich pounds 3,000 7.10F 180 days

B'ham Midshires pounds 1,000 7.05F 180 days

TSB pounds 9,000 7.05F 120 days

Royal Bank of Scotland pounds 9,000 6.75F-9.25F12 30 days.

Allied Trust Bank pounds 9,000 6.25F-8.75F2 Unspecified

Northern Rock pounds 9,000 8.00 pounds 30 +

C&G pounds 9,000 7.75 pounds 30

Bath pounds 1 7.50 Discretionary

Mercantile pounds 1 7.50 pounds 30

Northern Rock pounds 3,001 7.50 pounds 30+

Allied Trust Bank pounds 9,000 7.25 pounds 25

F=fixed interest; 1interest not compounded; 2 fixed rates rise by steps over five years - highest rate only in year five. Source:Moneyfacts