Cash ISA's Deemed Unfair

Over the past few months as we have entered the ISA season we have been encouraged by the number of clients willing to consider transfering Cash ISA funds into stocks and shares ISA's mainly through the use of fixed interest style funds.

We have for some time identified the fact that many Cash ISA's are not offering value for money and the following report released today seems to back this up.

Banks are not giving consumers a fair deal on cash ISAs, campaign group Consumer Focus has told the Office of Fair Trading (OFT) today. Consumer Focus has attacked the cash ISA market for the:

• Difficulty in switching. Very few people are switching between ISAs despite the apparently large number of products available on the market. This is because it can take weeks to go through an unnecessarily bureaucratic and inefficient switching process.


• Lack of transparency. It is often unclear how much interest people are earning on their savings. Rates are hidden in complex tables and it is often hard to find interest rates on old accounts.


• Relative decline in interest rates. Interest rates on cash ISAs have fallen much further than what homeowners pay on their mortgages or even the rate of interest paid on other savings accounts.

Banks are ‘bait pricing’. Many providers are using ‘bait’ or ‘bonus’ interest rates to attract savers, but after the initial bonus period has finished there is little competition and the products often offer poor value. Meanwhile, banks are secure in the knowledge that when rates plummet consumers are unlikely to switch.

The Financial Services Consumer Panel has welcomed Consumer Focus’ complaint, comparing the way banks sell cash ISAs to payment protection insurance sales and unauthorised overdraft charges.

Adam Phillips, chairman of the Consumer Panel, said: ‘Here is yet another example of banks being more interested in making money than in their customers getting a fair deal’.

‘We will press the FSA to take action. It cannot be a fair outcome for consumers – or what the Government wanted to achieve in providing this tax incentive – that people end up with little more interest from their tax free account than they would get from an ordinary account,’ he added.

However, the British Banker’s Association criticised Consumer Focus for not discussing its complaint with the banking sector, claiming if it had been given the chance it could have explained the work it is already doing with the regulator to help ISA customers.

(Source: Citywire 31/03/2010)

If you are sitting on dormant Cash ISA funds and would like to explore alternatives please contact us and we will be pleased to present some options.