MONEY COMMENT
Finding Financial Best Buys (Part 2)

By Cliff D'Arcy
July 10, 2003

Yesterday, I wrote about my search for a new current account, after deciding to ditch my bank following recent poor service. I settled on an online account with Smile, the internet division of the Co-op Bank, which offers 3% credit interest, an overdraft at 9.9% APR and a fee-free £500 overdraft (and I've heard good things about Smile's service).

But my search for best buys doesn't end there. I'm also looking for a first-rate tax-free savings account for my wife...

Part Two: Finding a top-notch TESSA-only ISA

Recently, I wrote about my search for a TESSA-only ISA (or TOISA). Savers with maturing TESSAs can transfer their capital (up to £9,000, not including accrued interest) into a TOISA and earn tax-free interest. (Note that a TOISA transfer does not affect your annual £3,000 limit for investing in a cash mini-ISA.)

As all current TESSAs will mature before 6 April 2004 (as they were abolished in 1999), banks are offering good rates on TOISAs at the moment, as they're keen to capture the last of this capital. My wife's TESSA matured a few days ago, so I'm dithering about where to move her money. Her building society's TOISA pays interest of 3.8% a year, which is pretty good, but I think we can do better elsewhere.

To find the best rates currently available, I turned to comparison websites Moneyfacts, MoneySupermarket and Moneynet (which crashed a lot this morning). Northern Rock appears to offer an attractive rate (4.45%), but this includes a 0.7% introductory bonus for six months, making its long-term underlying rate an unexciting 3.75%.

Some of the best rates (up to 4.35%) come from small building societies, which restrict applications to local savers or members. Also, many of these accounts include notice periods of 30 to 90 days, but we would prefer instant access to this capital in case of emergency.

Lloyds TSB's CAT-standard TOISA pays 4.25% a year but requires the full £9,000 to be paid in. As my wife's capital is less than this, the Best Buy appears to be 4.2% with the Kent Reliance BS. Once again, this proves that the tiddlers almost always beat the high-street names!

However, a final search threw up upmarket provider Merrill Lynch HSBC's internet-only TESSA ISA account, which pays an unbeatable 4.6% on a minimum deposit of £5,000. This is an instant-access account with no penalties for switching, so if the rate becomes unattractive later, we can transfer without penalty. The extra 0.4% interest over KRBS works out at almost £33 a year more, which is worth having, since we don't need access to a branch network.

So, if we were lazy and simply reinvested my wife's TESSA with her building society (at 3.8%), we'd lose out on an extra £66 a year, so it's worth switching to MLHSBC (it takes about 15 minutes to apply online). Job done!

Later today, I'll document my search for a Best Buy easy-access savings account.

More: The Fool's Savings Centre| ISA Centre