Cash ISAs to be transferred more quickly in major changes agreed by banking industry

News - Savings

Written by Ray Clancy

Wednesday, 30 June 2010 09:01

The maximum time taken to transfer cash ISAs between providers is to be cut from 23 to 15 working days following a review after the Office of Fair Trading received a super complaint from over the way the market operates.

The OFT said that it has also secured agreement from the industry to clearly publish the interest rates on cash ISA statements.

But it found that introductory bonus rates are not causing substantial harm as they are made clear to consumers. It says the greater transparency and quicker transfers announced will help consumers know their interest rate so they can compare offers and switch to better deals more easily and quickly if they wish to do so.

Banks have also agreed that interest will start to accrue no later than two days after the funds have been received from the old provider and the new arrangements come into effect from 31 December 2010.

Customers will also receive more information in future. Banks have committed to show interest rates on cash ISA statements in time for the 2012 ISA season and from July 1 this year all customers with a balance of more than £500 will receive pre-notification when a bonus or introductory interest rate ends if the bonus rate has applied for six months or more.

Consumer Focus, which brought the complaint that resulted in the changes, said they are necessary first steps to drag the £158 billion cash ISA market into the 21st century but more still needs to be done.

It said in its complaint that savers are attracted by good headline rates which disappear within months and banks have failed to keep consumers informed about current interest rates and made transferring an ordeal.

Cutting the length of ISA transfers to 15 working days could save consumers up to £14.5 million, it said and removing multiple layers of complexity, confusion and delay will mean that consumers can more easily understand what sort of shape their savings are in and whether they would be better off switching account.

Consumer Focus wants to see a dramatic improvement in transfer performance by next Spring when the majority of ISAs are transferred. If transfer times are not meeting the 15 day guidelines, it wants the Financial Services Authority to identify the worst performing banks.

It also wants banks to automatically pay consumers their new rate of interest after 15 days, no matter which provider is at fault for the delay and a speeding up the timetable for printing interest rates on customer statements.

‘This market is inefficient, secretive and stops people making informed choices about their life savings. We live in the age of keyboards, not quills. We urge everyone to make sure their complaints about ISAs go on the record as customer complaints will be an invaluable tool for keeping the banks' feet to the fire. At the moment if every saver moved onto the best deal, they would collectively gain billions. This is one industry where loyalty clearly doesn't pay,’ said Mike O’Connor, chief executive of Consumer Focus.

Consumer champion Which? said a fully electronic ISA transfer system is needed. ‘In this day and age there’s simply no excuse for ISA transfers to take so long. The OFT’s measures are an important step towards a better deal for consumers but a fully electronic transfer system is a must have if the ISA market is going to work for all savers,’ said chief executive, Peter Vicary-Smith.