Consumers let down by ISA transfers

Banks have been forced to improve things – slowly – but savers are still losing billions of pounds. Alison Shepherd investigates

Whether you believe it's a banking industry con or simply a cock-up, there is no doubt that the system of allowing customers to transfer their individual savings accounts between providers is badly in need of repair.

After years of dealing with an opaque, costly and antiquated process, the 17.5 million savers who invest the £158bn currently in cash ISAs can look forward to a better deal from banks and building societies – but not for up to two years.

New guidelines from the Office of Fair Trading state that providers should reduce the time taken to transfer money from one ISA to another to 15 working days, down from 23 by 31 December, and that there should be much greater transparency over interest rates. At the moment, only around 15 per cent of savers receive statements that include their rate, but all statements will include this information by May 2012.

The announcement comes after a 90-day OFT investigation – prompted by a "super-complaint" lodged by Consumer Focus, the independent champion for UK consumers – found that several elements of the ISA market were harmful to savers. Issuing its complaint in March, Consumer Focus said that cash ISA holders were losing up to £3bn worth of interest because of the way the market operated and demanded that interest rates become more transparent and that transfer procedures be speeded up so that consumers do not have to wait months for their cash to be in the account of their choice. And while in banking limbo, both providers have been accused of trying to evade responsibility for any interest payments, each claiming that the account was with the other.

Although welcoming the regulator's decision, Mike O'Connor, the chief executive of Consumer Focus, was disappointed by the time given to banks to mend their ways.

"We live in the age of keyboards, not quills. ISA transfers should take days, not weeks, certainly not over a month," he says. "For competition to work for consumers, they need to be able to switch simply, quickly and with the right information. The 15-day transfer guideline is welcome, but it must be a benchmark for banks to improve upon – the bare minimum and not a target."

Mr O'Connor's organisation is not the only consumer group concerned with the time taken for cash to be transferred from one provider to another, nor to be disappointed that the OFT did not insist on a tighter deadline for introducing electronic transfers.

"If transfers go wrong, they seem to go really badly wrong," says Vera Cottrell of Which? "It's not a case of just going over the 23 days by a couple of days. Either it's within the current guideline or it can take months. We have heard of cheques being lost in the post five times in one transfer. Electronic transfer is a must-have. It is not something that the banks can dismiss as just too expensive. They need to put customers first and bring transfer time down to no more than 10 days."

The British Bankers' Association says that it is setting up a study on the "feasibility of introducing electronic transfers", which could report by the end of the year. "There is a lot of paper involved in the transfer of ISAs to ensure that the correct and sufficient information is sent from one provider to another, but the direction of travel is to move to an electronic system," says Peter Tyler of the BBA. "There is not enough space in the electronic payment system for all the information needed under the ISA regime. With our members, we will be looking to find a mechanism that will work."

The Royal Bank of Scotland is one of only a handful of providers already working towards an electronic system.

The second area of the OFT's investigation concentrated on the lack of transparency over interest rates. Again, consumer groups are disappointed that banks have almost two years to rectify the problems.

"It is disappointing that the banks have set a deadline of May 2012 for putting interest rates on statements. Consumers will be right to ask if it is reasonable to wait so long for such a basic change," says Mr O'Connor.

Concern at the lack of transparency has become more pronounced since onset of the credit crunch, he says, as until then ISAs had generally offered a higher rate than other savings accounts. But that changed substantially, with the average cash ISA paying depositors just 0.41 per cent. The shift was far from transparent, however, as banks used much higher short-term introductory rates to attract savers, and then statements did not detail when those offers expired. A Downing Street petition protesting against this lack of transparency received 32,000 signatures last year. According to Consumer Focus research, Santander, Royal Bank of Scotland, Cheltenham & Gloucester and Yorkshire were among the worst offenders for offering rates of less than 0.1 per cent.

Consumer groups believe the banks and building societies are also relying on savers being too laissez-faire when it comes to switching accounts for better rates.

"Essentially, banks are relying on our apathy to make their money," says Mr O'Connor. "People set up their ISAs and only years later realise that had they switched they could have earned thousands rather than hundreds of pounds."

And you shouldn't put off a search for better rates until the new year, hoping to avoid transfer problems. Just ensure you keep details of every contact with your current provider and the new one; remind them of the 23-day limit, and if the worst comes to worst, refer your case to the Financial Services Ombudsman for a ruling and compensation if delays have cost you interest.

Kevin Mountford, the head of banking at Moneysupermarket.com, warns savers not to wait until December to transfer accounts if there are better rates out there. "My advice to consumers is to be proactive and ask your provider what rate of interest you currently receive," he says. "If you have had an ISA for more than 12 months, then it is almost certain that you would be better off shopping around for a new deal as providers routinely leave old ISA savers to languish on low rates."

Expert View

Vera Cottrell, Which?

This reform is long overdue. We hear of people who fill in the forms wrong, but no one at the bank bothers to tell them. The first they hear is when they call a week later to chase the transfer and are told it's been stopped. These changes have to be just the start.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
Andy Davidhazy at the beginning (left) and end (right) of his hike
video
News
Taylor Swift is applying to trademark song lyrics from 1989
people
Voices
The popularity of TV shows such as The Liver Birds encouraged Liverpudlians to exaggerate their Scouse accent
voicesWe exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
Life and Style
Parker says: 'I once had a taster use the phrase 'smells like the sex glands of a lemming'. Who in the world can relate to that?'
food + drinkRobert Parker's 100-point scale is a benchmark of achievement for wine-makers everywhere
News
i100
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
    How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

    How to make your own Easter egg

    Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
    Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

    Bill Granger's twist on Easter Sunday lunch

    Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
    Joe Marler: 'It's the way I think the game should be played'

    Joe Marler: 'It's the way I think the game should be played'

    The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
    Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

    Cricket World Cup 2015

    Has the success of the tournament spelt the end for Test matches?
    The Last Word: Justin Gatlin knows the price of everything, the value of nothing

    Michael Calvin's Last Word

    Justin Gatlin knows the price of everything, the value of nothing