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FOOL SCHOOL
Do you remember TESSA, the Tax Exempt Special Savings Account? These lasted for five years and you were allowed to invest up £9,000 over the life of each account. You got all your interest tax-free and once your five years were up you could either take your money or put your money into a new TESSA account (and continue to receive tax-free interest). The last day you could open one was 5 April 1999, so there aren't any TESSAs in existence any more. But you were allowed to roll a TESSA that matured between 6 April 1999 and 5 April 2004 into what is known as a TESSA-Only ISA (or TOISA for short) so that you could continue to receive tax-free interest. The rates for these TESSA-Only ISAs are broadly similar to cash ISAs and the principles for choosing one are very similar - go for a high rate, keep one eye on it and be prepared to move your cash should the rate you're being offered become less attractive. (In theory you are entitled to reinvest the capital element of your TESSA-Only ISA into a cash mini ISA or the cash component of your maxi ISA. However, in practice many companies don't let you do this - they are not obliged to - and will insist you open up a TESSA-Only ISA so that they have more flexibility with the interest rates they can pay.) Types of TOISA Be aware that there are some curious variants of the TESSA-Only ISA that might catch your eye. These are not savings accounts but are linked to the stock market. In these instances, your returns will be linked to the performance of one or more major stock markets and you'll be promised, say, 100% of the growth over a five-year period with no risk to your capital, as long as you agree to lock your money in for that period. The provider gets to keep the dividends however, which could amount to 15% to 20% over the course of five years. So, while the capital guarantee has its attractions, handing over up to 20% of your potential gains is a hefty price to pay for the privilege. Looking for an ISA? Then pop into our ISA centre.