The former grand old dames of savings aren’t dead. Tessas were a tax-free way to save cash, the forerunner of the cash ISA, the last ones matured in 2004; yet to keep them tax free you were allowed to shift the cash into a special Tessa-only ISA; if you have one of these you can make it work a lot harder for you, increasing your interest by £100s.
What is a Toisa?
The Tessa only ISA, which is tongue twistingly known as a Toisa, is a special tax-free product that was designed for people to move their Tessa cash into on maturity. It is completely separate to the annual ISA allowance, but works the same way.
In other words it’s effectively a savings account you can put the money in, where you don’t pay tax on the interest. Unlike the old rules for Tessas, Toisa money doesn't have to be locked away, it can be withdrawn whenever you want without losing the tax benefits; though once withdrawn it can't ever be re-deposited into the Toisa.
The Tessa was replaced by ISAs in 1999, but they lasted five years so the money could therefore have been shifted into a Toisa anytime up to April 2004.How to improve your Toisa returns
If you have a Toisa, check the rate, there's nothing preventing you shifting it to a new provider that pays more interest. Technically there’s no longer any difference between a Toisa and a cash ISA, though for ease I’m going to refer to them all as Toisas in this article.
This means you should simply transfer the money to whichever Toisa (some have kept the name), or cash ISA that allows you to transfer money in, pays the most. However, before switching there are a couple of important notes.
- Never withdraw the money to transfer it. This is a BIG warning. Don't just withdraw the cash from your Toisa to move it; do that and you'll immediately lose the tax benefits. Instead, simply ask your chosen new provider about its transfer procedures and follow them. This will usually involve filling out a form and then it’ll transfer the money across.
- Check there’s no transfer penalty on your existing Toisa. A minority of Toisas levy a penalty if you leave to move the cash elsewhere. If the penalty is small, such as 30 days interest, it isn’t a problem; but if it’s higher, say £25, you should consider whether the extra interest gained overcomes the cost of the fee.
- You can’t add to it, but can merge it with old cash ISAs. Toisas are now closed, so you can’t add any new money to it. Yet if you have past years' cash ISAs, many providers will allow you to transfer them all or merge them into one account.
The Top Toisas
There are three different Toisa options: you can move to the highest interest account; fix the rate to get guaranteed interest; or link the returns to the stock market to up the risk. There is no need to stick to one – you can split your Toisa cash into a couple of different accounts if you choose to.
Instant Access/No-notice Toisas
With these accounts you can access the cash whenever you want without a penalty and the rates tend to be high too. Currently the top playing places to shift your Toisa money includes both specifically named ‘Toisas’ and ‘Cash-ISAs’ which accept Toisa money transfers:
On 10 April, Bank of England cut UK base rate to 5% After such a fall, it usually takes the savings account market up to a month to stabilise. This article will be updated as regularly as possible, yet for the time being you should double check rates yourself before applying, or wait until the market has stabilised – I’ll let you know in my Weekly Money Tip. |
- Icesave 6.1% from £1,000, Online. Icesave's Easy Access ISA pays 6.1% on all balances from £1,000, and lets you transfer in all previous years ISA money for no fee, plus there's no penalty if you want to switch away at a later point. It also has a great rate guarantee, promising to beat the [[base_rate]] by at least 0.3% until January 2011.
IMPORTANT. Icesave, unlike some foreign banks, hasn’t chosen to be completely protected under the UK's Financial Services Compensation Scheme, and thus if, in the unlikely event that it were to go bust, getting the money back could be more difficult. See the Are Your Savings Safe? guide for a full explanation, and Martin’s Icesave safety blog.
- Kent Reliance 5.76% from £1, Offline. If you want an offline account, or will be transferring less than £1,000, Kent Reliance Building Society's Direct TOISA pays 5.76% and allows penalty free transfers in and out.
- Check you local Buiding Society. On occasion a few small Building Societies may beat these with special deals for people in their locality or existing customers, so it's worth checking yours. All these rates are variable, meaning the providers can change the interest whenever they like. Therefore always monitor what yours pays and transfer again if it drops. For more options and alternatives, read the Top Cash ISAs article.
These accounts are variable rate, which means providers can choose to alter them both with the Bank of England base rate and for their own competitive advantage.Therefore it’s worth keeping an eye on the rate and shifting again if it’s no longer competitive.
Fixed Rate Toisas
As you’ve already kept the money untouched for a long time, it’s possible you’re just leaving it as a nest egg. Therefore you could decide to shift the cash to a fixed rate Toisa/cash ISA. Doing this means you’ll be guaranteed a rate of interest over a set period, but if you want to withdraw the cash early you’ll have to pay an interest penalty of up to 180 days.
On the whole as interest rates seem to be rising at the moment, the gain from locking your money away is likely to be limited, but if surety is important this is a good way. Comparison service MoneySupermarket* will do a search of the current best buy Toisas for you over a set period.
Link your Toisa returns to the stock market
Riskier, but potentially better-paying alternatives while come from the complicatedly named Guaranteed Equity Bond Toisas (GEB Toisas). Here you lock your money away for around five years and the tax-free interest depends on the performance of the stock market, yet if it crashes you’re always guaranteed to get at least your original cash back.
If this sounds too good to be true, the main fly in the ointment is you get the stockmarket’s growth but not any dividends (usually worth 2-3% a year). So, compared to a direct stock market investment, the returns if the market's increasing aren’t as good; but your money is protected if the market falls. Plus you can’t invest directly in the stockmarket within the tax-free Toisa status any other way
If you want to try and get a little more money out of your Toisa, and are prepared to take the risk of losing out on any interest, then these are for you. A typical GEB Toisa will pay 90% of the growth of the stockmarket index (e.g. the FTSE-100 index which measures the performance of the UK's leading companies' shares) over 5 years.
The range of GEBs on the market are constantly changing but Birmingham Midshires, Barclays, Britannia BS and Leeds BS amongst others all tend to offer them.
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External Toisa/Mini Cash ISA Comparison |
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IMPORTANT WARNING! Always check this article's recommendations first. This comparison link isn't anywhere near as comprehensive as the article. Yet as a comparison service the prices are updated daily so it occasionally may provide interesting results. |
If you had the maximum amount in a Tessa that matured in 2004, you’d should comfortably have £10,000 in there now including the interest.
If you put all this is a poor paying Toisa you could earn £1,250 interest over the next 3 years but move it to a top paying account and you could earn £1850, a gain of £600.
| Interest on £10,000 savings gain over next 3 years | |||||
| Provider |
Interest Rate |
Year 1 |
Year 2 |
Year 3 |
Saving |
| Worst paying cash ISA |
4% |
£400 |
£815 |
£1,250 |
- |
| Best paying Toisa |
5.75% |
£575 |
£1,205 | £1,850 | £600 |
| This assumes the difference continues for ease of illustration; though if you keep shifting to the best Toisa every year or so this shouldn’t be a problem. | |||||
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