Holders of cash Individual Savings Accounts (ISAs) could be losing £3bn per year in interest payments, due to restrictive practices in the ISA savings marketplace, according to the new independent watchdog, Consumer Focus.
Consumer Focus has formally complained to the Office of Fair Trading on 31st March about ISAs, which are now held by 37% of UK households (source: Halifax).
The complaint claims that ISA savers are restrained from seeking better ISA deals, due to lack of transparency over the interest rates they are receiving, and restrictive practices with regard to cash transfers between ISA providers.
The OFT has summed up the Consumer Focus ‘super-complaint’ as identifying the following issues:
- Processes for transferring savings between cash ISA accounts are unnecessarily bureaucratic and inefficient, with some ISA providers imposing arbitrary rules prohibiting transfers into the more attractive accounts.
- There is a lack of clarity over interest rates, making it difficult for consumers to compare ISAs and shop around for the best ISA deal.
- Many ISA providers use high initial or bonus interest rates, which then drop substantially, leaving savers with uncompetitive rates in the longer term.
Research by Consumer Focus showed that while many ISAs offer ‘teaser’ rates of over 3% to savers, the average ISA holder currently gets less than 0.5% in interest after a year.
The Consumer Focus complaint has been backed up by Which? magazine, which in its April issue calls on the ISAs industry to impose a 10-day time limit on the time it takes to transfer an ISA, and for the industry to develop a fully electronic transfer system. Which? also demands that consumers taking fixed-rate ISA products to be guaranteed the interest rate used in advertising, at the time of their application.
The Office of Fair Trading has promised to respond to the Consumer Focus complaint within 90 days of the date of lodgement, which was 31st March 2010.
