The OFT have responded to the Cash ISA super-complaint lodged earlier in the year and the news is good. We explain what's changing.
At the end of March 2010, campaign group Consumer Focus made a super-complaint about the state of the cash ISA market to the OFT (Office of Fair Trading).
The OFT spent the past 90 days investigating the claims – which centred on an unfair transfer process and misleading rates - and have now set out a plan for improvement.
Here’s what’s going to change:
The transfer process
The OFT found that at the moment it takes, on average, 25 days to transfer a cash ISA from one provider to another; however, it can be as much as 30 days. The result is that account holders are missing out on earning interest at the presumably higher rate offered by their new cash ISA for almost a month. What’s more, during at least part of this process the funds may not be accruing interest at all.
The OFT recognised this as unfair and have agreed the following changes (to come into effect on 31st December, 2010 if not before) with the banking industry:
- Cash ISA transfers will take no more than working 15 days
- If a transfer takes longer than this, the account will start accruing interest at the rate paid by the new cash ISA from the 15th working day regardless
- Interest must be paid on the account every day during the transfer process, either by the existing, or new account provider
This means that from the start of the New Year (if not before!) Cash ISA transfers will be completed in less time, and with the reassurance that you’ll get every penny of interest that you should.
It’s worth noting that the OFT has recommended that the FSA keep tabs on cash ISA providers to ensure that they are keeping within these guidelines. Each provider will need to provide cash ISA transfer figures to the FSA every month; those that aren’t meeting the 15 day deadlines are likely to be penalised.
They also recommended that account holders complain to their ISA provider if their transfer takes longer than 15 days!
Interest rate transparency
The OFT found that only 15% of cash ISA providers make the rate at which an account is accruing interest clear on their statements. As argued by Consumer Focus: this makes it difficult for consumers to stay informed about what they’re earning, and whether a better return is available elsewhere.
To improve transparency within the cash ISA market and to encourage account holders to shop around for the best rate possible, the OFT have asked all cash ISA providers to prominently display the rate of interest paid on an account at the top of all statements. Due to the administrative changes required they have set a deadline of 2012; however, it’s hoped that many will implement this measure sooner.
Introductory bonuses
The other key issue raised by Consumer Focus was that of introductory bonuses. They felt that the widespread use of these temporarily elevated interest rates within the cash ISA market resulted in account holders unwittingly losing out. This is one point with which the OFT did not agree.
Since 1st May, 2010 all cash ISA providers have started to notify their customers when an introductory bonuses paid on one of their account ends, or the interest rate drops significantly for some other reason. As customers are now being informed as and when this occurs, the OFT did not see the need to legislate on this further.
So what now?
These impending changes to the cash ISA market will no doubt benefit all account holders, so it’s important to make the most of them.
If you haven’t checked the rate of interest you’re earning on your cash ISAs recently then it’s a good idea to do so as soon as possible. Unfortunately it’s not safe to assume that the rate of interest paid when you opened the account still applies (unless it was fixed of course). If it doesn’t state the current interest rate on your latest cash ISA statement, then check your provider’s website.
Once you have this information you’ll be able to check whether your cash ISAs are still offering a competitive return – check out our cash ISA comparison tables to see the other accounts available. If you can get a better interest rate elsewhere, and aren’t tied into a fixed term, then you should look at transferring your cash ISA. Make sure you do this by requesting an internal transfer rather than simply withdrawing the cash – read this article for more information.
Once you’ve put the request in, make sure that you keep tabs on how long it takes for the switch to take place. If it’s longer than 15 days then contact your provider to find out what’s taking so long and to check that you’re still going to be paid interest during that time.
