Savers face poorer deals with this year's ISAs
New rules on cash transfers mean many providers are reluctant to offer best-buy deals to customers looking to change allegiance
Sunday 30 January 2011
If record low interest rates weren't bad enough, Britain's hard-pressed savers are being warned that they face some of the poorest deals ever in advance of the individual savings account deadline on 5 April.
As a result, even savvy ISA savers who shop around for the best deals will be left with returns which are unlikely to keep pace with inflation.
Market watchers argue that providers may be reluctant to offer best-buy rates because of fears that they will not be able to comply with new rules over the speed at which ISA cash is transferred from one account to another.
These FSA rules set a strict time limit of 15 days on ISA transfers: "The Office of Fair Trading says at present it's taking firms an average of 26 days to transfer an ISA, so 15 is a big ask," said Michelle Slade from financial information site Moneyfacts.
The scale of the challenge and the potential of missing the 15-day deadline are forcing some providers to review their plans. "There is definitely a feeling that some big players are waiting and seeing whether or not they offer a competitively priced cash ISA up to the April deadline," said Ivan Gould, the chief executive of the Buckingham Building Society.
One senior executive at a leading ISA provider, who wished to remain anonymous, put it more bluntly: "No one wants to be out there with a best-buy ISA account attracting loads of account applications from consumers and ending up missing the FSA's 15-day deadline. That could result in fines, compensation payouts and masses of bad publicity." Instead, the source added, providers were likely to reserve their best deals for brand new ISA subscriptions rather than ISA transfers, as was frequently seen last year.
Andrew Hagger from Moneynet said: "It's possible that providers will do this, preferring a large number of brand new accounts opened with new subscriptions rather than accepting cash from customers bringing in money from accounts they have had for several years. Some big providers chose to do this last year and it gets around the problem of having to ensure the transfer is done in 15 days."
But Mr Hagger adds that he thinks it's too soon to say that there will be far fewer good rate offers for ISA transfer customers this year than last.
"Things don't normally heat up in the ISA market until the end of February. It is only then we will be able to tell if the pre-ISA deadline rates are a bit of a dud or not."
But Ms Slade is more equivocal. "It could be that some ISA providers choose not to offer such competitive rates in order to maintain the flow of money coming in at a manageable level. We may also see an increased number of ISAs not accepting transfers in," she said.
If some providers do run scared from offering best-buy rates, Mr Gould thinks they could be missing a trick. "ISA cash is good cash for an institution to have. If a provider attracts £5m of new ISA money it needs to hold only 10 per cent of this in such safe investments as government bonds. Whereas with a standard non-ISA account, the requirement is to hold 20 per cent in ultra-safe investments.
This means that the potential to make a good return on ISA cash is greater than on standard deposit account monies. (Ultra-safe investments tend to produce lower returns.) This is one reason why we have made sure that we are geared up for ISA transfers, but not everyone is in the same boat."
However, Mr Gould, like several senior executives in the industry is still smarting at the introduction of the 15-day ISA transfer rule.
"If it takes 20 days for another provider to transfer a customer's cash to us, we have to ensure that the new account holder receives any lost interest by the delay. Now, under FSA rules, we can claim this back but in practice that is going to be both difficult and complex.
"What may end up happening is that we end up using our own members' cash to cover a shortfall caused by the poor administration of a rival. That seems unfair."
Some of the bigger providers – the Halifax and Nationwide – have chosen to bite the bullet over ISA transfers and promise that they will start paying interest not after 15 days but as soon as a signed ISA application has been received, regardless of whether or not that have received the cash from the provider the customer is transferring from.
"The key message is not to be put off going for any deal because you are worried about the ISA transfer process," Mr Hagger said.
"In this low-rate time, it's crucial to shop around and find the best deal. And remember, with the FSA 15-day safeguard in place, you should be receiving interest even if the cash hasn't physically moved from one institution to the other."
However, the soundings from the market suggest that the number of competitive rates on offer this year may be less than in previous years.
Michelle Slade, Moneyfacts
Each ISA provider has to advise the FSA over how long each transfer takes, and if they fail to meet the deadline, they have to explain why. Savers will be able to claim interest for the time the money is delayed and providers are likely to be held to account if they persistently fail to meet the 15-day deadline.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Board creates magnetic field to achieve lift
Follow the latest events from this Champions League fixture
Company reveals $542m investment in start-up building 'a rocket ship for the mind"
Singer says the track was 'force-fed down people's throats'
techThe original free dating app will remain the same, developers say
- 1 Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
- 2 Banksy arrest hoax: Internet duped by fake online report claiming artist's identity has been revealed
- 3 Former East 17 frontman Brian Harvey turns up at Downing Street and 'demands to speak to Prime Minister'
- 4 The inventor of the Facebook 'like' button says he never made a 'dislike' button because he feared the 'unfortunate consequences'
- 5 Russell Brand threatened with arrest after filming outside Fox News headquarters
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Lord Freud: Tory welfare minister apologises after saying disabled people are 'not worth’ the minimum wage
Lord Freud hangs on as MPs of all parties 'call for his head' over disability comments
iJobs Money & Business
£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...
£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...
£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...
£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village