ISA savers £3 billion out of pocket

Cracked egg

Millions of ISA savers are losing out on interest worth up to £3 billion each year because banks and other providers are not offering them a fair deal on products, rates or service.

New research shows the average ISA saver is earning less than 0.5% in interest despite the eye-catching rates offered when products are first launched.

Independent consumer group Consumer Focus says the ISA market is not working for consumers – and as such has submitted a so-called super complaint to the Office of Fair Trading (OFT).

A super-complaint is a request that the OFT undertake a full investigation into a market to determine whether it is significantly harming consumer interests. The regulator must respond to Consumer Focus’ super complaint within 90 days with a decision on what action it plans to take to tackle the problem.

Have your say on the issue in the comment box below

Mike O'Connor, chief executive of Consumer Focus, says: “Cash ISAs are designed to encourage long-term saving, but many people find their rates slashed to next to nothing after a relatively short time.

"Providers are using consumer inertia and confusion to drop ISA rates faster than on other accounts. The way providers inform customers about their accounts makes it difficult to get the best deal.”

The super complaint raises a number of issues:

•    The “unnecessary and costly delays” people face when transferring ISAs.

•    ‘Bait pricing' - the practice of luring in new customers with bonus interest rates, which lapse, leaving the long-term saver on uncompetitive rates of interest.

•    A lack of clarity that makes it difficult for consumers to find out their interest rate, especially on older accounts.

•    Confusion about which account a saver has, owing to the proliferation of similar (and similarly-named) products.

•    “Arbitrary” rules imposed by cash ISA providers forbidding transfers into some of the most attractive accounts - the best paying accounts often don't accept transfers from previous years' ISA allowances.

For example, the two leading instant-access ISA accounts currently on the market – from Santander and Barclays – do not accept transfers. This means savers with cash ISAs from previous tax years must either settle for a less competitive rate or leave their savings where they are, earning a token rate of interest.

“There is evidence that very few people do actually switch their accounts,” says O'Connor. “It beggars belief that in 21st century Britain it takes a month to transfer information and funds from one bank to another.”

Consumer groups have welcomed the super complaint.

Adam Phillips, chairman of the Financial Services Consumer Panel, says that, when it comes to ISAs, banks are “more interested in making money than in their customers getting a fair deal”.

Phillips adds: “We have seen it with sales of payment protection insurance, with unauthorised overdraft charges, and now with cash ISAs. 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.”

Which? agrees that consumers are being disadvantaged by banks reducing savings rates by stealth as well as lengthy delays in transferring ISAs.

But the British Bankers’ Association (BBA) has slammed the complaint.

It argues that the sector is already making changes to help ISA customers. 

For example, from May, customers will be given advanced notification of any material reduction in the interest rate on a cash ISA, plus advance notice of the end of any bonus or introductory rate.

It also claims the investigation carried out my Consumer Focus is “misleading”, as it is based on an online poll of just over 400 people.

"Interest rates in general are low, but banks still want to offer competitive rates and attract new customers,” the BBA adds. “From time-to-time they will launch new accounts with different features that might include higher interest rates or fixed interest for a set period. We would always encourage customers to shop around for the best deals."

Banks are already obliged to follow the Financial Service Authority’s rules on providing a prompt and efficient service to customers wishing to switch their cash ISA.

The OFT has confirmed the super complaint and says it will now consider the issues raised. It will also invite interested parties to provide any evidence which may be useful to the OFT's assessment.



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Your Comments

It is quite shocking what banks have been able to get away with in the ISA market. Surely the lack of ability to make transfers is anti-competitive. Dangling large rates on a big hook only to withdraw them at a later stage is very misleading. It is akin payment protection insurance providers offering low rates only to increase them after a year or so, although not all PPI providers do this which is something that cannot really be said for the ISA providers.

Two years ago I got over £300 interest on my £6000 isa this year I only got £32 on £8000
but banks are still paying LARGE Payouts to STAFF while we have to SUFFER Is there any point in trying to SAVE

Come on Banks and building societies- we have supported you through the downtimes and even rescued some of you from disappearing altogether.IT IS TIME THAT YOU GAVE US FAIRER ISA AND SAVINGS RATES.

As usual the banks & yes building societies use smoke and mirrors to confuse their prospective punters (known as mugs to the senior directors and government). Chasing the best deals requires research skills of a Phd student, transfer deals are poor and lack choice, giving notice to arranging the transfer by the providers taxes their admin skills, overall the rates are poor unless you "lock in" and off course if you have built up an ISA nest egg your options are limited.
Other than that if you have the time, resources, do not need the money and prepared to lock in and forget ISAs' are OK.

Switch should be on everyone's mind as we reach March/April!!
It takes time and effort to remember to begin the trawl of all the comparison sites and Martin's site of course in order to find the best deals.
I am transferring my previous years' ISAs to Cheshire BS at 3%, a fixed rate-the forms are already in the post.
I will also be at the A&L next week to open my new account at 3.2%.It's variable but at 2.7% above the bank rate looks good for the year.
They will both be moved as soon as we get to next April.
I believe I've done the best I can!

Fixed rate cash ISAs usually offer the best deals, however, they come with the disadvantage that you have to tie up your money and rates may rise. One has to balance this possibility with the interest rates on offer. There are fixed rate ISAs which give you penalty-free access to a portion of your investment during the term.
I always shop around carefully, its the only way to get a half-decent deal. I feel no loyalty to one bank, I frequently transfer my ISA when the interest rate drops. As the banks give no advance warning though, it is up to the saver to keep up with the interest rate.

Oh please what else did you expect from these poor bankers, yes I did say bankers. How else are they going to pay these large bonus payments to their staff? They have to confuse the customers. But again I expect them to get away with it after all they ruined the Country's finances then went bust and got away with it!!

The insulting ISA tactics are one part of a larger, more dangerous & very SCARY situation - The international power of banks has grown stronger than the democratic governments of many countries & they are emerging as the world's government. Everything must be done to curb their power as they grow even stronger in post bank-scandal times, hoovering up other international businesses.

Preventing monopolies was the cornerstone protection of capitalism but that has failed precisely because of the power of big money. Of course breaking up banks would cause many difficulties but that is the blackmail by which they continue to grow.

Interest rates are derisory, as well as all the delay tactics mentioned in your article. Our money bailed out the banks, or for others, like Barclay's, indirectly kept their spheres of operation going, and yet they continue to throw us crumbs while arrogantly dishing out provocatively large bonuses to senior bankers. Ring any feudal bells?

The problem is very deep & no doubt beyond the scope of this discussion (aspects such as identifying & stopping global cartels?) but also dangerously demoralising. I hope our collective voices can do something before perilous rebellion seems the only alternative.

In your list of Top Cash ISA accounts you list Alliance and Leicester's Super Flexible ISA Ex/C .

Where can I find more about this please as it does not appear on their web npage. Does it still exist?


What has actually happened here is the banks and building societies are reducing the interest on cash ISA's to the level of taxed accounts. This means that they are not giving the tax to the saver or the government. They are KEEPING it for themselves. They are relying on the difficulties that they have made in moving the money easily to hang on to it at an unfair rate

We followed the advise of one of the Big Fours financial advisors and after over 10 years we are still waiting for our ISA to make any money!!

To the editors

I posted a considered response 2 days ago, after first registering to join your ranks; then a notice appeared saying it would be reviewed before being posted.

Today I found I could not log in as the web said I was not registered. So I registered again.

Please let me know - Where is the time-consuming, detailed comment I made 2 days ago.

Thank You

Daisy Lightfoot