Building Society Linked

A commitment to save a fixed amount, monthly or yearly for 10 years into a life insurance policy which after the deduction of a charge is linked to a tax free investment in a bank. After 10 years you stop saving and can continue to earn tax free interest.

Some versions invest half your money in a unit trust. Avoid them as they sacrifice the flexibility of a Unit Trust Personal Equity Plan which has the same tax exemption. If you are offered a scheme with a premium over £270 a year or £25 a month, the excess does not benefit from the tax exemptions described above.

Who can invest Anyone up to age 70.

How worthwhile Fair value for taxpayers, and higher rate taxpayers, who are sure they can save for 10 years. Unsuitable for non-taxpayers. Consider instead Bank and Building Society Tessa Account which has the same tax exemption and interest but lower charges.

Minimum £9 a month; £100 a year.

Maximum £25 a month, £270 a year for each eligible person. A married couple can take £50 a month or £540 a year between them. Limits apply to premiums on all such policies with all Friendly Societies. Beware of policies with higher premiums; you will not get full tax exemption.

Suitable Regular savings. You can set up a transfer scheme: a lump sum is invested in a special account and each year the premium is automatically transferred to the friendly society policy. The interest on the decreasing balance in the account is not tax free but over 10 years allows the lump sum to fund the regular savings plan in full (eg 10 yearly premiums of £270).

Money back After 10 years. If you stop saving earlier, your return is reduced. Can be left longer to accumulate tax free.

Interest Variable Interest is accumulated within the policy.

Interest paid When you cash the policy after 10 years or more. If you die while the policy is in force, the greater of the value of your policy or the guaranteed life cover (usually £1,500 for an £18 a month payment) is paid.

Tax There is no tax on the proceeds nor on the interest accumulated of savings of up to £200 a year (to be raised to £270 a year) or or £18 a month (to be raised to £25 a month).

Fees to pay Deducted from your investment. 7½% initial on monthly premiums, 5% initial on yearly. Yearly ¾%. Check the exact charges before you invest.

Passbook None. Insurance policy issued. Yearly statement.

Children Each child can have its own policy.

Risk Friendly societies are covered by The Investors Compensation Scheme.

How to invest Phone or write for an application form.

Where from Homeowners Friendly Society. Bradford & Bingley (Prosperity Plan).