New guidelines to speed up ISA transfers
Savers with cash ISAs should see an improvement in the length of time it takes to switch accounts from one provider to another.
There should also be greater transparency in the information savers are given about the interest rates delivered by their accounts.
Changes to the guidelines have been brought about following a supercomplaint made to the Office of Fair Trading (OFT) by the customer watchdog, Consumer Focus.
Consumer Focus asked the OFT to look at concerns including the time it takes to transfer a cash ISA and the transparency of interest rates.
Consumer Focus found that only one in 10 ISAs was being transferred in less than two weeks, despite HM Revenue and Customs guidelines saying the switch should be carried out within 23 working days.
The transfer of cash ISAs takes an average of 26 days, although about a quarter of transactions take over 30 days.
Moves have been made to speed up the process, with some banks and building societies introducing electronic transfers for ISA funds. However, many still write and post cheques to each other, so stretching out the time each transaction requires to be made.
Usually about 11 per cent of ISA account holders switch providers each year in search of better interest rates.
After a three-month investigation, the OFT has announced an agreement with the ISA industry to revise guidelines on how long cash ISA transfers should take, coming down from 23 to 15 working days. The change will come into effect from 31 December 2010. Eventually the timeframe should be reduced to just a “handful” of days.
The agreement also includes a commitment to publish clearly the interest rates on the face of cash ISA statements as from early 2012. At the moment only around 15 per cent of customers currently receive statements that include their interest rate.
The sluggish method of transferring ISA accounts also means that many customers receive no interest payments at all for about two to five days during the changeover, a becalmed period when neither the previous nor the new provider pays interest.
The OFT has ruled that this gap needs to be ended so that savers always get interest on their funds.
Consumer Focus has estimated that lowering the transfer time from 23 days to 15 days will deliver savers as much as £14.5 million a year in interest.
HM Revenue and Customs and the Financial Services Authority have amended their guidance in line with the new agreement.
The OFT said that the greater transparency and quicker transfers will help consumers compare their own interest rates with other offers, and to switch to better deals more easily and quickly if they wish to do so.
Clive Maxwell, the OFT’s senior director for services, commented: “This is an important market for the 17.5 million consumers with £143 billion of savings in cash ISAs, and also for the wider economy since those savings support lending to many households and businesses.
“Our work over the past 90 days has revealed that, whilst there is often strong competition between providers in this market to win new savings, the transfer of cash ISAs is taking too long and there is not enough transparency over interest rates. The voluntary changes announced today will give consumers a fairer deal and drive stronger competition.”
Mike O’Connor, the chief executive of Consumer Focus, 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.
“The 15 day transfer guideline is very welcome, but it must be a benchmark for banks to improve upon – the bare minimum and not a target.”