Consumer Focus warns that thousands of cash Isa holders are losing money by sticking with poor savings products after introductory interest rates have expired
As the new tax year gets underway savers with existing cash Isas are being warned to check their investments closely ? while providers offer "early bird" deals to attract new customers, they are slashing the rates paid on older accounts.
HMRC figures show there is �172bn held in cash Isas, but data from Consumer Focus indicates more than a third of cash Isa holders have had them for more than five years, suggesting they are losing out on interest that could be gained by switching.
Two-thirds of people who opened a cash Isa with an introductory interest rate are likely to be losing out by failing to switch once it runs out, while a quarter of cash Isa savers did not know whether their account even had a bonus rate. A further third of account holders with an introductory rate weren't sure if their rate had expired or not.
Oliver Morgans, financial services expert at Consumer Focus, said: "Unfortunately it seems that banks use higher interest rates to lure customers in and then aim to cash in on their inertia. Sadly, Isa customers have to watch banks like a hawk if they are to get the best deals, and our advice is to check your rate. If you are not happy vote with your feet and switch to an Isa that pays more."
Current best-buys
Savers investing the maximum �5,340 in Santander's best-buy Flexible Isa, paying 3.3%, would earn �176.22 in interest this year ? but it is only open to new investors. The headline easy access rate for those wishing to switch funds is Halifax's Cash Isa, paying 3%, followed by Nationwide building society's e-Isa, paying 3.1%, although this is only available if customers also have a card-based savings account with Nationwide.
Fixed-rate cash Isas pay higher rates than variable or easy access cash accounts, with the average for all fixed-rate cash Isas currently at 3.44%, dropping to 1.88% on variable rate Isas and 1.75% on easy access products.
Over one year, the Bank of Cyprus fixed-rate Isa pays 3.3% and accepts transfers, while Santander's two-year fixed-rate postal account pays 3.7% and is also open to transfers. Leeds building society is paying 4.2% on its three-year fixed-rate Isa, which accepts transfers and allows investors to access 25% of their cash without penalty, while the best four-year fix is at Saffron building society paying 4.5%. BM Savings is the best-buy cash Isa over five years, paying 5%.
Kevin Mountford, head of banking at moneysupermarket.com, said: "With little movement expected in the market, by shopping around and comparing the range of products that best suits their circumstances savers could be better off taking advantage of the good rates now, as they will benefit from accruing interest immediately rather than waiting for a better deal at a higher rate."
He added: "This year we have seen several providers keeping their good deals available beyond the Isa deadline, and have even seen some new market leading deals being introduced. But savers might need to act quickly as the headline rates could disappear."
Last year, Consumer Focus filed a super complaint with the Office of Fair Trading (OFT) over the cash Isa market, detailing a number of concerns including: low switching levels; confusing pricing structures; and unnecessarily complicated and slow switching processes. It also accused banks of giving poor information to their customers regarding the comparison of accounts.
The OFT has since held banks to an agreement that interest rates be printed on customer statements by May 2012 and transfers be completed within 15 working days. Consumer Focus estimates this could save consumers more than �14m.
Source: http://www.guardian.co.uk/money/2011/apr/07/cash-isa-holders-urged-switch
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