A guide to ISA rule changesPosted on: 14 July 2010 by Mark O'haire
People with a cash ISA should receive faster transfer times when switching providers and be given more information on interest rates, the Office of Fair Trading (OFT) has said following an investigation into industry practices.
These guidelines are the result of a 'super-complaint' from watchdog Consumer Focus, which led to the 90-day investigation by the OFT. Although voluntary, the banking industry has agreed to abide by these new guidelines.
At present, 17.5 million of us have stashed away £143 billion of savings in cash ISAs, according to the OFT. So what will these changes mean for your savings?
The OFT's recommendations
As a result of the investigation, the banking industry has agreed the maximum transfer time for one cash ISA provider to another should drop from 23 days to 15 - with effect from 31 December 2010.
Providers will also be required to publish interest rates prominently on ISA statements. In the course of its investigation, the OFT discovered that only around 15% of providers make this information clear on their statements.
However, it's important to note banks and building societies do not need to provide you with this information until the 2012 ISA season.
The OFT also identified a period between transfers during which neither provider pays interest on the investment - which can be as much as five days. Therefore, it recommended interest should be paid on each day of the transfer.
The OFT concluded that there should be further investigation into the potential roll-out of an electronic transfer system.
Was change necessary?
In making its complaint to the OFT, Consumer Focus estimated those of us with cash ISAs could be losing up to £3 million a year in interest because of the way the ISA industry works.
Despite the 23-day guideline, the OFT found that a quarter of transfers take more than 30 days and some providers took 40 days - often because the existing provider sends the cheque via second class post.
During the investigation, several ISA providers confessed transfer times were subject to increases during the 'ISA season' between February and March. Other providers will wait until there are a number of transfer requests before initiating the switch.
"The OFT found that there are problems in transferring cash ISAs," Mike O'Connor, chief executive of Consumer Focus, said. "This market is inefficient, secretive and stops people making informed choices about their life savings."
He added: "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."
In its super-complaint, the watchdog also argued savers were attracted by headline rates. However, it said these are replaced by less favourable rates (often as low as 0.5%) once the introductory period had expired.
Despite concerns from Consumer Focus that introductory headline rates unduly influence customers, the OFT pointed out that savers are made aware that such offers are introductory and will end.
Will it make a difference?
Although the changes agreed are voluntary, the OFT has recommended the Financial Services Authority and HM Revenues & Customs amend their guidelines to reflect the recommendations. If adopted, this move could lead to censure for providers that do not adhere to the rules.
However, Consumer Focus expressed disappointment that providers will not have to display interest rates on statements until 2012.
Remember, if you are not happy with your ISA provider, you should first contact the customer services department. If the company is unable to resolve your complaint to your satisfaction, you should contact the Financial Services Ombudsman.
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