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
Sunday 04 July 2010
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."
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.
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 19-23 January
Bargain Hunter: From The Outsider to 1984, catch a cut-price classic, read it in the rye
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Money Insider: Smart alternatives to the pensioner bond
- 1 The truth about 'girl things': Three cheers for Heather Watson's honesty
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 3 UK weather: Snow to fall in the coming week with sub-zero temperatures to last until early February
- 4 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 5 Men behaving badly: Urinating while standing, 'manspreading' and the gendering of selfishness
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village