Cash Isa switching process to be speeded up
The three-week switching process for Cash Isas could be reduced as part of plans by the City watchdog to make it easier for savers to get better rates.
It currently takes 15 working days to switch and the Financial Conduct Authority (FCA) says savers are, as a result, being put off from ensuring their money is earning a competitive rate of interest.
It found that around £160 billion deposits in easy-access savings accounts earned a rate of interest less than or equal to the Bank of England base rate of 0.5% in 2013.
"Consumers often find it difficult to know what rate they are on, or are put off switching by the expected inconvenience," the FCA said in a statement. It added that some 80% of easy-access accounts have not been switched in the past three years.
A market study by the watchdog has revealed the £700 billion cash savings market "often does not work well for consumers, particularly those with long-standing accounts".
The FCA said money held in older savings accounts - which represents "a significant proportion of providers' total savings balances" – attracts lower rates of interest than recently-opened accounts pay.
It also said savings providers generally don't do enough to inform their customers of better savings deals available, but singled out current account providers for particular criticism.
"Large personal current account providers have considerable advantages over other providers because they can attract most easy access balances despite offering lower interest rates," the FCA explained in a statement.
The regulator is now calling for a series of improvements to make the market work better for consumers.
To aid consumers who hold older savings accounts, the regulator wants to see providers be "more transparent about how reductions in interest rates on variable-rate savings accounts are applied the longer a consumer holds the account. This includes displaying prominently the lowest rate of interest any of their customers receives".
More generally, the FCA said simple things can be done to bring about a better savings market for consumers, such as requiring providers to give "clearer, more timely information" to help them compare their accounts with alternatives. This should include communicating interest rate changes and bonus rate expiry better to consumers, it said.
The regulator also said it would like to see it made easier for consumers to view and manage accounts with different providers in one place.
Reduce the hassle
Christopher Woolard, director of strategy and competition at the FCA, said: "In a good market firms should be competing to offer the best possible deal and consumers should have the information they need to help them shop around. We want to see firms making simple information much easier to find. More also needs to be done to reduce the hassle for consumers to switch their savings. The steps we have proposed today are designed to make the market more dynamic, working in everyone's interest."
The FCA is now consulting on the proposals until mid-February before it makes any rule changes.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.