Further confirmation was given yesterday to our long held belief that Banks and Building Societies do not operate policies that are fair to savers when it comes to the way they offer Cash ISAs.
Investment Sense has always campaigned for better savings rates and fairer terms for Cash ISAs and it would seem now that the Banks and Building Societies will face further investigation and possibly action after the campaign group Consumer Focus submitted a Super Complaint to the Office of Fair Trading (OFT).
Consumer Focus said “We estimate that 15 million cash ISA holders could be losing out in interest worth up to £3 billion a year because of the way the market operates.”
According to Consumer Focus the average rate of interest received on a Cash ISA is a paltry 0.5%, which is tiny compared to the headline grabbing rates offered on Cash ISAs when they are launched and also represents a real terms loss with inflation around 3%. Furthermore it believes consumers face unfair barriers when they try and shop around for a better rate.
The Super Complaint calls on the OFT to address the following issues:
1. The unnecessary and costly delays people face when transferring ISAs from one Bank or Building Society to another
2. ‘Bait pricing’ – the practice of luring in new customers with misleading ‘bonus’ headline interest rates, which lapse, leaving the long-term saver on uncompetitive rates of interest
3. The lack of clarity surrounding interest rates which makes it difficult for consumers to find out exactly what interest they are receiving, especially for older accounts
4. Confusion about which account a saver has, owing to the proliferation of similar (and similarly-named) products
5. Arbitrary rules imposed by cash ISA providers forbidding transfers into some of the most attractive accounts – the best paying accounts often don’t accept transfers from previous years’ ISA allowances
It is common knowledge that Banks and Building Societies issue accounts with attractive headline rates only for them to be reduced at a later stage, there are very few accounts available that consistently pay market leading rates. It is sad that one such account that did offer a consistently attractive rate, the Investec High 5 Account, was withdrawn last week for new business, however it is a sign of the times that such a good quality account cannot compete with the constant stream of new launches paying high initial rates only for the rate to be dropped relatively soon after launch.
Furthermore consumers who do shop about to get the best rates face delays in the switching process. At a time when technology has never been more advanced it beggars belief that according to Consumer Focus many ISA transfer can take over five weeks to complete and only 1 in 10 are completed within two weeks. There is no reason for this to be the case and it is clear that Banks and Building Societies need to invest some of their profits in this area.
Mike O’Connor CBE, Chief Executive of Consumer Focus, said:
‘At less than half of one per cent interest the average ISA saver is getting a poor deal. Of course, people could vote with their feet and switch to the three per cent deals currently on offer but we are concerned that the cumbersome transfer process and poor information provided by the banks inhibits doing this. There is evidence that very few people do actually switch their accounts. It beggars belief that in 21st century Britain it takes a month to transfer information and funds from one bank to another.’
‘Cash ISAs are designed to encourage long-term saving, but many people find their rates slashed to next to nothing after a relatively short time. Providers are using consumer inertia and confusion to drop ISA rates faster than on other accounts. The way providers inform customers about their accounts makes it difficult to get the best deal.’
The complaint is being made under the terms of the Enterprise Act 2002 and obliges the OFT to respond within 90 days with a decision on what action it plans to take.
Here at Investment Sense we fully back the Consumer Focus Super Complaint and will keep you regularly updated whenever there is news of its’ progress.
In the meantime we will continue to publish our Best Buy Savings Accounts making it very clear where a bonus rate is attached to any savings account including an ISA and also highlighting accounts that give consistently high returns. Furthermore we are constantly working to improve the services we offer to help you get a better return for your savings.
Visit the consumer focus website by clicking here.