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; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film Ridley Scott reveals truth behind casting decisions of Exodus
News
Andy Murray with his girlfriend of nine years, Kim Sears who he has got engaged to
peopleWimbledon champion announces engagement to girlfriend Kim Sears
Arts and Entertainment
Jake Quickenden and Edwina Currie are joining the I'm A Celebrity...Get Me Out Of Here! camp
tv
Arts and Entertainment
Roisin, James and Sanjay in the boardroom
tvReview: This week's failing project manager had to go
Life and Style
Fright night: the board game dates back to at least 1890
life
Life and Style
fashion
Finacial products from our partners
Property search
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

    Langley James : IT Support; Helpdesk, VMware; Manchester, £18k

    £16000 - £18000 per annum: Langley James : IT Support; Helpdesk, VMware; Manch...

    h2 Recruit Ltd: Business Development Manager - HRO - £70k+ ote

    £35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...

    Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

    £Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

    Citifocus Ltd: Operational Risk Analyst

    £Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

    Day In a Page

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
    There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

    In pictures: There's a Good Girl exhibition

    The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
    UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

    UK firm Biscuiteers is giving cookies a makeover

    It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
    Can SkySaga capture the Minecraft magic?

    Can SkySaga capture the Minecraft magic?

    It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
    The King's School is way ahead of the pack when it comes to using the latest classroom technology

    Staying connected: The King's School

    The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
    Christmas 2014: 23 best women's perfumes

    Festively fragrant: the best women's perfumes

    Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
    Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

    Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

    Our partner charities help veterans on the brink – and get them back on their feet
    Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

    Putin’s far-right ambition

    Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
    Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

    Escape to Moominland

    What was the inspiration for Finland's most famous family?
    Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

    24-Hour party person

    Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
    Michelle Obama's school dinners: America’s children have a message for the First Lady

    A taste for rebellion

    US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches