Be Wary of ISA Inertia; FINANCIAL Management Expert IAN LOWES, Pictured, Looks at Cash ISA Accounts

The Journal (Newcastle, England), July 3, 2010 | Go to article overview

Be Wary of ISA Inertia; FINANCIAL Management Expert IAN LOWES, Pictured, Looks at Cash ISA Accounts


Byline: IAN LOWES

BANKS and building societies were lambasted earlier this year for the appalling rates they were paying on their existing cash ISA accounts and their tardiness in allowing people to transfer their money out into a new, better paying account.

A 'super complaint' was lodged with the Office of Fair Trading highlighting the way these institutions slashed the interest rates on their existing cash ISA accounts while giving headline rates on new accounts, hoping investors would not notice; then when investors spotted what they were doing and tried to get out, they took an inordinately long time to transfer cash to a new account.

ISAs were launched to promote long-term savings. The Government allows savers to take accumulated growth or to draw down the income from ISAs, free of all taxes. Sadly, this year the tax break was all that many cash ISAs had in their favour.

Investors trying to switch to another provider offering a better return found it could take weeks for the transaction to be carried out. A survey carried out by Consumer Focus, the group behind the 'super complaint', revealed that a third of people said switching their cash ISAs took longer than five weeks, while only one in 10 transferred in less than two weeks.

At the same time it was reported that the Financial Ombudsman Service, the complaints adjudicator for the financial services industry, was receiving around 10 complaints a week about cash ISAs, mainly on the issue of transfer delays.

Guidelines from HM Revenue & Customs state that such transfers should be carried out within 30 days. However, aside from complicated rate structures, with hard-to-understand penalties and conditions, one of the key factors the banks and building societies rely on most is customer inertia. They know that, once the money is deposited, large volumes of customers fail to check the ongoing rate or simply can't put up with the hassle of transferring to another account. …

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