Check Your ISA rate
by Patricia Montgomery, LincsMag Writer.
Date: 31 March 2011
New research by Consumer Focus shows that two-thirds of people who opened a cash ISA with a ‘teaser’ interest rate are likely to be losing out by failing to switch once the higher introductory interest rate runs out.
The consumer watchdog is raising concerns because in a market 15 million customers use, worth £172 billion, consumers are losing money by not switching after these 'bait-prices' expire. Many of the best buy cash ISAs offer introductory bonus interest rates which go down after a fixed time, usually 12 months.
Before the new tax-year, providers compete with eye-catching interest rates topped up by bonuses to attract customers. However after the initial bonus period ends, interest rates plummet, often leaving savers with uncompetitive accounts. Cash ISAs currently can pay over three per cent interest, but the average interest rate is just 0.43 per cent.
losing out on interest
Worryingly, the research also reveals almost a quarter of cash ISA savers did not know whether their account even had a bonus rate and a third of account holders with an introductory rate weren’t sure if their rate had expired or not.
More than a third of savers who hold a cash ISA have had it for more than five years, suggesting they are losing out on interest that could be gained by switching.
Oliver Morgans financial services expert at Consumer Focus said, "Around one in three of us has a cash ISA so millions of people are likely to be losing money by not switching when their bonus rate ends. Unfortunately it seems that banks use higher interest rates to lure customers in and then aim to cash-in on their customer’s inertia.
"Sadly ISA customers have to watch banks like a hawk if they are to get the best deals. With consumers getting a paltry return as low as 0.1 per cent on some accounts, our advice to savers is to check your rate and if you are not happy vote with your feet and switch to an ISA that pays more.
"We want to see banks introducing simpler products which work for the majority of savers. People shouldn’t need to be full-time consumers permanently switching accounts to get fair rates."
super-Complaint
Last year, Consumer Focus issued a super-complaint to the Office of Fair Trading (OFT) about the cash ISA market. The super-complaint detailed a number of concerns with cash ISAs including low switching levels, confusing pricing structures; unnecessarily complicated and slow switching processes; and accused banks of giving poor information to their customers making it difficult to compare accounts.
As a result of the super-complaint the OFT secured an agreement with the banks that interest rates would be printed on customer statements by May 2012 and to speed up transfer targets to 15 working days – Consumer Focus estimates this could save consumers more than £14 million.
