Cash Isa interest to be protected
- 29 June 2010
- From the section Business
Savers with Individual Savings Accounts (Isas) should not lose any interest when switching their cash to a different provider, the Office of Fair Trading (OFT) has said.
The ending of this interest payment gap would give a "fairer deal" to customers, the OFT said.
Banks have also agreed to reduce the amount of time Isa transfers take.
The measures follow a supercomplaint brought to the OFT by the customer watchdog, Consumer Focus.
Tax-free Isas were introduced in the UK 11 years ago to encourage people to save. At least 17.5m people in the UK have £143bn held in cash Isas.
About 11% of Isa holders switch to a new provider in a typical year, the report said.
The transfer of cash Isas takes 26 calendar days on average, the OFT added, although about a quarter of transfers take longer than 30 days. Part of the reason is that the old provider sends a cheque and details to the new one via second-class post.
Industry guidelines suggest that the process should not take more than 23 working days.
But the OFT has agreed with the banking industry that this deadline should now drop to 15 days.
It added that building new computer systems could reduce this wait to just a "handful" of days. This was welcomed by Consumer Focus.
"We live in the age of keyboards, not quills. Isa transfers should take days not weeks, certainly not over a month. For competition to work for consumers, they need to be able to switch simply, quickly and with the right information," said chief executive Mike O'Connor.
The OFT also found that there was a "dead" period of up to five days in the middle of a transfer, when neither the old not the new provider paid any interest at all.
It said that this gap should not exist, ensuring that savers always got interest on their funds.
This gap was typically between two and five days, according to Clive Maxwell, senior director of services at the OFT.
"The voluntary changes announced will give consumers a fairer deal," he said.
"This will give consumers much better tools to shop around."
The OFT gave a clean bill of health to Isa providers for introductory bonus offers.
Watchdog Consumer Focus, which brought the supercomplaint, had accused providers of "baiting" consumers with short-term, high rates, which later fell without fanfare.
However, the OFT said there was clarity for consumers about how such teaser rates worked.
The report also found that only 15% of providers made the interest rate clear on the statement.
Some 38% of customers thought they knew the interest they were getting, but 62% did not know when asked.
The British Bankers' Association said it "broadly welcomed the OFT report, saying the agreed measures were "a clear example of how the industry has been listening to the concerns of customers and consumer organisations".
The Financial Ombudsman Service said that it had received 700 cases about Isas over the last 12 months.
"The majority of these are sorted out quickly in favour of the consumer, so that they are refunded any interest they have lost out on as a result of the delay. We are also able to award money for distress and inconvenience caused by the delay, where appropriate," a spokesman said.