Banks were once again accused of being greedy, deceitful, dishonest, exploitative, unfair and over-bureaucratic after Consumer Focus submitted a super-complaint to the Office of Fair Trading over the malfunctioning cash individual savings account market. It claimed that cash Isa holders, of which there are about 15 million, are collectively losing out on as much as 3 billion a year because of the inefficiencies of the market and poor service from providers.
The way in which many Isa providers undermine the success of the market by chopping and changing rates and making it difficult for consumers to access the best deals has been raised in these pages on a regular basis.
Now Consumer Focus has cast new light on cash Isas as we mark the end of another tax year in which the number of savers taking advantage of the tax-free status of Isas – at a time of rock-bottom savings rates – has again been underwhelming.
The complaint does not accuse banks and building societies of cheating customers out of good rates, but it does single out several insidious tactics employed by providers to take advantage of their customers.
Some of it may even pass as sheer incompetence. For instance, Consumer Focus estimated that a third of the cash Isa holders that switched account last year had to wait more than five weeks for their transfer to complete. Given the extent to which banking transactions are now conducted online, that's a staggering statistic for which there is no excuse. Astonishingly, many banks still rely on the old cheque-in-the-post method to transfer money, having failed to develop automated Isa transfer switching systems. The obstacles to switching are not only technical, as many of the most competitive deals are not available to existing customers.
A more deliberate ruse that is increasingly common in a low-margin environment is the use of short-term bonuses. Bonuses are all that's keeping the average rate of the top ten Isa deals at a respectable 2.72 per cent – take them out and the average is just 1.61 per cent. Across the whole market the average has plummeted to 0.47 per cent, the latest Bank of England figures show this week.
All but one of the top ten accounts being marketed this Isa season have bonuses of either 12, 15 months or 18 months. Similarly, all of last year's top five deals carried one-year bonuses, meaning that millions of savers who snapped them up 12 months ago will, as of next week, find their money languishing in very ordinary deals. The majority, however, will leave their money in those accounts, deterred by a stodgy switching process from doing anything about it, or just lacking the inclination to act.
And that's exactly what providers are relying on. They know that few customers will be sufficiently vigilant to keep an eye on their rate and move when it becomes uncompetitive. Just 12 per cent of Isa holders switched account last year, despite the prevalence of short-term bonuses. While the obstacles to transferring are doubtless a significant contributing factor, consumer inertia is part of the problem.
Most of the complaints made by Consumer Focus concern tactics that play on this, with short-term bonuses just one example. The OFT has until the end of May to respond. But whatever measures it takes to prevent cash Isa providers from exploiting savers, there is little it can do to address consumer apathy.
If you have an Isa, find out what rate you're getting. It may have been good when you took it out, but there's a good chance that it's now worth virtually nothing. If that's the case, then go to a comparison website such as Moneyfacts or Moneysupermarket and get the best possible rate you can for next year's allowance.
The best deals remain competitive, bonuses or not, and the tax-free status of cash Isas adds to the attraction.