Tessa holders freed from penalties for switching accounts

Millions of customers who are locked into poor rates on their Tax Exempt Special Savings Accounts (Tessas) will be free to move to another Tessa provider without penalty, the Banking Code Standards Board (BCSB) said today.

Millions of customers who are locked into poor rates on their Tax Exempt Special Savings Accounts (Tessas) will be free to move to another Tessa provider without penalty, the Banking Code Standards Board (BCSB) said today.

Savers in the UK hold a total of £21bn in Tessas. Many banks and building societies currently charge £25 to transfer a Tessa to another institution, while others charge the equivalent of 90 days' interest. This has led to protests from customers whose providers have cut rates but retained the penalties.

The BCSB's voluntary Banking Code is followed by all banks and building societies in the UK. Its new guidelines make clear that if the interest rate of a Tessa does not meet the spirit of the code, customers must be free to move their money to another provider.

The watchdog adds that customers must be told that they can move their Tessa without penalty, which means no loss of interest and no charges. This means many providers will have to mail-shot the affected customers, the BCSB says.

In addition, Tessa providers paying poor rates will have to raise those rates to what is deemed an acceptable level. This is defined by the BCSB as a rate equal to that paid by the same provider on active accounts with similar features.

Seymour Fortescue, BCSB chief executive, said: "This problem has generated a lot of interest, although there has been less abuse with this kind of superseded account than some others. For instance, Bristol & West was paying just 0.1 per cent on some of its superseded accounts, whereas the lowest of the Tessas is paying over 5 per cent."

On Tessa transfers, Mr Fortescue said: "We are glad to have reached a conclusion that we believe to be beneficial for consumers and workable for the industry. We are keen to see a competitive market in Tessa transfers develop."

Penalties for customers who transfer out of existing Tessas vary widely. Barclays Bank charges £25, while HSBC, Lloyds TSB and NatWest have no penalty charges. Bradford & Bingley requires 30 days' notice. The Portman Building Society charges up to 180 days' loss of interest. Lambeth Building Society demands 120 days' notice and a £30 fee on some Tessas.

The BCSB is studying all out-of-date accounts that appear to offer poor rates to ensure that its Banking Code is applied.