Savings nightmare: My dismal ISA experience helps explain why people prefer to spend what they earn

Financial services companies and their regulators put myriad obstacles in the way of people who want to be virtuous, under the guise of combating money laundering and consumer protection when they'll help with neither

A piggy bank might serve you better than dealing with one of Britain's financial institutions (Getty/iStock)

Britons borrow far too much and save far too little. You only need to look at the savings ratio (record low of 3.3 per cent of household income) and the alarm calls from city watchdogs about the growth of unsecured borrowing (credit cards, personal loans) to see that.

My ISA season experience might help to explain why, at least partially.

Despite the troubles it causes, borrowing is still something that is relatively easy to do. Lenders have good reason to make it that way. From payday loans companies, to credit card providers, they want to suck you in. Once they have their claws into you, you’re theirs.

So, feed your details into a price comparison site, and the best deals will materialise. Or just pop down to the bank. Tick a few boxes, and the money will be in your account. Simple.

Saving can be rather more complicated. For a start, the returns from stashing your money in bank or building society savings accounts are pitiful. To maximise them, if you are a taxpayer, you will need to get your hands on an ISA, because that way there is at least no tax to pay.

However, if you want returns that beat inflation (currently rising), you will likely need to put at least some of your money into a mutual fund of some description.

That means it’s welcome to the jungle. If you follow this course of action you will be faced with a bewildering array of funds, from a bewildering array of providers, all of which will tell you they’re great, sometimes with the aid of colourful graphs, while warning you that past performance means nothing (because the regulators tell them to say that).

You will be charged for your trouble, a percentage of your funds annually for investment management, even if your fund loses money. If you use one of the ISA “wrapper” services, which allow you to move your money in and out of lots of different funds from lots of different providers, you’ll also pay an admin fee.

My wife and I tried to open a couple of the latter, with a provider that has been advertising like crazy recently (as they all have).

Having dealt with financial companies in the past, we armed ourselves with driving licences, passports, and various other documents. We also rang our bank, to alert it to the transfer of funds, only to be told we’d still likely have to jump through some hoops that it imposes “for your protection”. Sigh.

Nonetheless, we pressed on. Be bold! We just didn't get very far.

I didn't get beyond the identification page, where I was told that the ISA company was going to require me to submit a copy of my passport, verified by a solicitor, through the post. Which meant I was going to miss the ISA deadline. Money laundering prevention, you see. Protection against identity theft. Or some such.

The City is awash with laundered cash from all over the world, much of it in property. I’m not sure how my submission of a verified copy of my passport is going to have the slightest impact on that. I’m not sure how that requirement would prevent any other clever scam.

The demand seemed to be more about the ISA company ticking a box than cracking down on white collar crime. Or the Financial Conduct Authority's desire to be seen to be doing something. Or both (probably the latter).

And, anyway, my wife submitted exactly the same details as I did, but she got through to the payment page. Only to be told that the provider is having a row with MasterCard. A ding dong with a help(less) line ended with the suggestion that we try a bank transfer, but there was also a warning that that too might end with the deadline being missed.

John Lewis style service this wasn’t. Hell, it would have embarrassed even Sports Direct. I'd name the company concerned, but then, I had another nightmare with my bank when I tried to pay off a credit card bill, running into another bevy of security checks that also seemed more about ensuring it ticked every possible box to keep its regulators happy than it did about keeping my identity safe and my account secure.

I believe in regulation, and I believe in consumer protection, but I don’t believe my experiences with either company have anything to do with either of those.

First-world problems? Sure. But faced with them, combined with a long and sorry list of scandals perpetrated by financial institutions, is it any wonder that people give up, and resort to spending the money they earn?

At least that way you get something you want, and that might give you some joy. Tomorrow can look after itself, because the financial “services” industry won’t.

I do wonder if the fall in the savings ratio has something to do with people asking whether these companies deserve, and can be trusted, with their money, and whether it is worth the hassle of interacting with them when the likely result is heart palpitations and a prescription from the doctor for blood pressure medicine.

Is it possible that someone with half a business brain might recognise that there is a problem here that might yield some tasty profits if they found a way to make modest improvements? You’d think so, but this being financial (dis)services, I wouldn’t bet on it.

Come to think of it, you might be better off with a bookie.