Dodgy bank practices number 94: Isas
(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)
The Consumer Focus watchdog has called for an Office of Fair Trading (OFT) investigation into the use of temporary headline interest rates to attract savers to cash Isas.
Tax-free Individual Savings Accounts (Isas) were introduced in the UK 11 years ago to encourage people to save. The average interest rate stands at 0.41%, Consumer Focus said, with many banks and building societies “baiting” customers with short-term higher rates.
Consumer Focus believes that savers are missing out on interest of up to £3bn of interest a year, partly because it is difficult to switch providers. The Office of Fair Trading (OFT) must now consider the complaint, and give a response within the next 90 days.
About 37% of UK households have a cash Isa. A significant proportion of those hold as much as is allowed in these accounts. In April, the amount people can save in an Isa every year will rise from £7,200 to £10,200, of which half can be saved in cash and half, or all, in stocks and shares.
The end of the financial year usually brings a so-called “Isa season” with high levels of marketing by the various providers. But Consumer Focus said that some offered eye-catching rates of more than 3% which dropped after a year to uncompetitive levels.
It is certainly true that at less than 0.5% interest the average Isa saver is getting a poor deal. And while people could switch to one of the 3% deals on offer, many are put off by the cumbersome transfer process.
Consumer Focus points out the evidence that very few people do actually switch their accounts. It is almost unbelievable that in 21st century Britain it takes a month to transfer information and funds from one bank to another.
The British Banking Association has leapt to the defence of its members, unsurprisingly their spokesman does not believe that there is any reason for concern.
From May customers will be given advanced notification of any reduction in the interest rate on a cash ISA, plus advance notice of the end of any bonus or introductory rate. This seems like it should be standard procedure, not a last minute concession in the face of a potential investigation but we should be thankful for small mercies.
As with any banking product, the advice with Isas is clear, shop around, compare as many products as possible before making a decision, after all its hardly rocket science to find a good deal these days. Then read all the small print and read the statements to make sure you are still getting the rate of interest that you think you are.
