Over 10 million Britons with cash in ISAs are currently losing over £600 million annually in interest as a result of delays and inefficiency in transfers of ISA accounts.
That could be about to change, because after growing frustration and thousands of complaints, the banks and building societies have agreed new guidelines on processing ISA transfers. Under these guidelines, a transfer should normally be completed in 18 working days, as compared with the six weeks or more some savers have suffered recently.
But many providers will have to beef up their administration departments to stand any chance of meeting the new guidelines, so it’s likely to be several months before savers see significant improvements.
Pressure eventually paid off
The industry only acted under pressure, because all banks and building societies benefit from the difficulty of the transfer process. It means savers are reluctant to endure the hassle of moving, so they accept lower interest rates on their money. In fact the best rates on cash ISAs are about 0.5% less than the best rates on other savings accounts.
That’s equivalent to a loss of interest for savers of over £600 million on the £120 billion currently held in cash ISAs. In fact, the loss to savers is far greater than that – it is probably nearer £2 billion annually- because many old ISA accounts pay much lower rates of interest.
Being able to move ISA accounts more easily should spur competition in the ISA market, especially for tiered accounts that encourage people to consolidate several cash ISAs by paying a higher rate the more you hold in your account.
So far this year, 9 million people have subscribed £18 billion to their cash ISAs, a significant increase over the previous year, which shows that the tabloid headlines about our spendthrift society drowning in debt are rubbish. It’s just that we have one group of people who are being sensible and saving and a smaller group of people who have maxed out on debt and are now paying the price.
