Advisers and consumer firms have rallied behind the Consumer Focus group after it issued a super-complaint to the Office of Fair Trading over the cash Isa market.
The consumer group says 15 million cash Isa holders could lose out on interest worth as much as £3bn a year, highlighting issues with transparency and transfer delays.
A super-complaint means that, under the terms of the Enterprise Act 2002, the OFT has to respond within 90 days on what action it intends to take.
Research carried out by the Consumer Focus group shows that many Isa holders are getting less than 0.5 per cent interest on their cash Isas despite headline rates being over 3 per cent on average. They also face obstacles in trying to transfer accounts, with a third of those polled saying the transfer took longer than five weeks to complete.
The Consumer Focus group was created by bringing together the National Consumer Council, including the Welsh and Scottish Consumer Councils, Postwatch and energywatch in October 2008. It receives funding from the Department for Business, Innovation and Skills and its Government department sponsor.
Chief executive Mike O’Connor says: “It beggars belief that in 21st century Britain it takes a month to transfer information and funds from one bank to another.
“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 that providers inform customers about their accounts makes it difficult to get the best deal.”
Financial Services Consumer Panel chairman Adam Phillips says cash Isas are just another example of banks being more interested in making money then doing their best for customers.
He says: “We have seen it with sales of PPI, with unauthorised overdraft charges and now with cash Isas.
“It cannot be fair for consumers or what the Government wanted to achieve in providing the tax incentive when people end up with little more interest in their tax-free account than they would from an ordinary account.”
The British Bankers’ Association says it has already begun to work with the FSA to help Isa customers. From next month, customers will be informed of all reductions in the interest rate on their cash Isa as well as the end of a bonus and introductory rate.
The BBA also points to the FSA rules on services for switching Isas, which indicates timescales for transfers.
A spokesman says: “HM Revenue & Customs rules require transfers to be completed within 30 days for the old manager to respond to the new manager’s request and the vast majority of transfers are meeting these. The new Isa manager must credit the transfer proceeds to the customer’s new Isa account within five business days of receiving the funds.”
Moneysupermarket.com head of banking Kevin Mountford says 30 days is too long to wait, given the level of technology that banks have today and that transfers should take 48 hours. He adds that some providers will not allow savers to transfer their funds.
He says: “Our analysis shows that, of the top 10 best-paying Isas, one provider will not allow transfers out and four will not accept transfers in.
“Isas are supposed to be portable but these restrictions reduce competition and make it hard for consumers to switch to the best rate.”
Bestinvest senior investment adviser Adrian Lowcock supports the Consumer Focus group’s call and says the new rules will help.
He says: “Savers will need to take control of the situation. The first step is to call your bank and find out what the interest earned on the Isa account is. Then ask if there is an introductory rate and if so when it expires. Also find out what information you need to arrange a transfer.”
CandidMoney.com founder Justin Modray says: “The fact that it does take some banks more than 30 days to switch, according to the survey, is a massive concern. It is a case of investors looking closely at the rates and being proactive enough to shop around and switch if necessary.”