How savers are being penalised by ISA transfer hold-ups

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by: MarkeD
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Word Count: 541
Date: Sat, 24 Apr 2010 Time: 9:56 AM
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With interest rates at all time lows, many ISA savers are frantically shopping around to find the best rates in order to maximise their returns. But as much as this is a sensible step to take, many savers are being prevented from making the most of their money because of problems with the transfer process.

Switching ISA providers is common, particularly as savers look to take advantage of better and more competitive rates when they become available, but currently banks are legally allowed to take up to 30 days to transfer the ISA, and often this transfer process takes even longer, a problem that is now causing uproar.

Super-complaint filed

Consumer Focus, a consumer campaigning website, has had enough of the time taken to transfer ISAs, labelling the 30 day period as an "unnecessary delay" that costs consumers between 1 and 2 per cent in interest; or in real terms as much as £3billion a year.

It feels so strongly about the transfer problems that it has filed a super-complaint to the Office of Fair Trading (OFT), claiming that consumers face unfair obstacles in transferring their accounts, due to poor and bureaucratic processes used by providers, citing the lost interest that consumers face as a result of the time taken to transfer.

But that's not all..

Long transfer periods are just the tip of the iceberg when it comes to savings, and Consumer Focus has also raised issues regarding the lack of information about interest rates for existing customers, and the misleading presentation of temporary ‘bonus' rates.

As Revd. John Strain, spokesperson for campaign group Save Our Savers says: "Savers want to see tighter rules to prevent ISA providers blatantly hijacking the tax incentives intended for savers."

"As things stand, when you strip out the tax-free element, cash ISAs are typically offering lower rates than their equivalent non-ISA savings accounts, cancelling out some or all of the benefit of saving inside an ISA."

Could change be on the way?

The OFT must respond to the ISA complaint within 90 days with a decision on what action it plans to take. But as one of the major saving gateways for consumers in the UK, it is clear that something has to be done to improve the ISA market and help savers switch to better ISA rates when they become available.

Although there is no promise that change will be forthcoming in the ISA market, it is important not to let the transfer trap stop you from changing providers, particularly if you think you can benefit from a higher rate of interest or a better deal.

In the words of Mike O'Connor, chief executive of Consumer Focus: "There is evidence that very few people do actually switch their accounts," but don't let the transfer trap make you one of them.

Next steps

Have you been put off changing ISA providers for fear of the administration headache it will cause? Or have you had transfer problems in the past which means you are now reluctant to go through the transfer process again?

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