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Watchdog claims Isa savers miss out on £3bn a year
Consumer Focus is to complain to regulators that consumers with cash Individual Savings Accounts are missing out on £3bn a year in interest because of inefficient practices by providers.
Consumer Focus on Wednesday will send a “super-complaint” to the Office of Fair Trading arguing that savers were being unfairly treated by banks and building societies by “bait pricing” – the practice of offering attractive headline rates on cash Isas only to see them dramatically drop a short time later.
Isa limit could rise above £11,000 – Mar-26In depth: Personal finance – Mar-31The watchdog also claimed that consumers faced unnecessary and costly delays when transferring accounts, there was a lack of clarity on interest rates and arbitrary rules were imposed by cash Isa providers forbidding transfers into more attractive accounts.
It also found the average rates of interest on cash Isas had fallen further in the downturn than other comparable savings products, such as mortgages and branch-based instant access accounts.
”The data suggest to us that that banks have used consumer inertia and problems in transferring savings in cash Isa accounts to increase the spread they earn from old accounts,” it said.
Under the “super-complaint” procedure, the OFT has 90 days to decide whether to investigate.
Isas have been seen as a success story since their introduction by the government in 1999 as a tax shelter. It is estimated that about 19m people, a third of all adults, own at least one cash Isa and £275bn has been invested in the products. Last week’s Budget increased the allowance to £10,200 for all savers in the new tax year starting April 6.
“On average, Isa holders are getting less than 0.5 per cent in interest despite the eye-catching rates, currently in excess of three per cent, at which they are often brought to the market,” said Mike O’Connor, chief executive of Consumer Focus. “These ‘bonus’ headline savings rates usually drop after a year, often leaving savers with uncompetitive rates.”
The Isa market is dominated by the high street banks, with Lloyds Banking Group taking a 21.3 per cent market share and Santander, owner of Abbey National and Alliance & Leicester, a 14.8 per cent stake. Nationwide, the country’s largest building society, has a 14.6 per cent stake.
