Consumer Focus claims banks and building societies are “luring in” new customers for their tax-free ISA savings accounts with “bait pricing” – headline interest rates that lapse and leave customers on “uncompetitive” rates of interest.
Banks and building societies spend most of their ISA marketing budgets in February and March ahead of the end of the tax year on 5 April. According to Consumer Focus, advertising spend on cash ISAs in 2008-09 was £9.7m with the most money (50%) spent on press ads.
The consumer group makes its claim in a “super-complaint” lodged with the Office of Fair Trading (OFT). A “super complaint” made to the OFT must be investigated and responded to within 90 days.
In it, the group claims that “bonus” headline savings rates in excess of 3% often drop significantly to less than 0.5% after a year. It adds consumers are less likely to switch their account to another provider because they are “baffled” by the lack of information provided about their interest rate or account name and put off by “unfair” bureaucratic barriers
The group estimates that consumers who do not switch to ISAs with better interest rates could be losing 1-2% interest on their savings, which equates to between £1.5 and £3bn per annum in lost interest.
A spokesman for the British Bankers Association says that Consumer Focus has “chosen to launch its super complaint without any discussions with the banking sector”, which he claims is working with banking watchdog, the Financial Services Authority, to “help ISA customers”.