Loyalty counts for very little for the banks. Nothing illustrates this more decisively at present than the treatment of cash Isa savers.
Cash Isas — individual savings accounts — are one of the most popular and valuable ways to save, as interest is tax-free. Last year more than 12 million people took one out — about a quarter of the adult population. More than £150 billion has been salted away in the tax-free accounts over the years.
Between now and the end of the tax year, on April 5, banks and building societies bring out their best rates to attract new money. If you have not already done so you can put away £5,340 in the current tax year.
This is also usually the best time for rate-hungry savers with accounts from previous years to seek a better deal. It is a wise move. Table-topping returns are cut ruthlessly as soon as enough savers have been attracted to an account. If you opened a cash Isa some years ago your money could now earn as little as 0.1 per cent.
Diligent savers are well aware of the tricks and more than a million move their cash Isa money each year in search of more competitive rates. Transferring money to another bank or building society has never been easy — absurdly, banks still use cheques to transfer money between competing accounts. Given the complications, many prefer to shift their money to a better account with their existing bank or building society. It is less hassle and takes less time and means your savings can remain profitable.
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But many people hoping to find a higher-paying home for their savings are finding their way blocked. When they inquire about the deals topping the best-buys, they are confronted with the pernicious words “no transfers allowed”. Even when they want to move with their existing bank they are rejected as the deals are for “new business only”. Like I said, loyalty counts for naught and savers are angry — we know because they’ve told us.
The transfer-ban culprits this year include AA, with its table-topping easy access account paying 3.5 per cent, and Barclays, with its farcically named Loyalty Reward Isa at 3.05 per cent. But the worst offenders are building societies, who have always trumpeted the most about customer loyalty. Cheshire Building Society’s Direct Cash Isa pays 3.35 per cent but none of its existing customers will be able to enjoy the new rate on money already deposited. M&S Money offers the top easy access account that doesn’t have a whopping bonus and lets transfers in.
From a business point of view, a transfer ban enables inflows to be controlled. From a customer point of view, it stinks. It also makes a mockery of the Office of Fair Trading’s efforts to speed up Isa transfers — which before it stepped in could take months. The OFT said this week that 93 per cent of transfers are now completed within 15 working days. It is a step forward, though still too long. However, its work has been wasted if transfers to the top deals aren’t allowed.
Beef up Isas for a genuine alternative to pensions
No one is expecting any giveaways in next Wednesday’s Budget. A dramatic jump in the Isa allowance would give a huge boost to this country’s savings culture. Even an increase to £15,000 — the allowance rises to £11, 280 on April 6 — would offer a genuine alternative to those who don’t like the idea of using a pension for retirement savings.
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People understand Isas but are baffled by pensions. To the young, in particular, investing in a pension is not an attractive idea because any money saved is trapped. Give people the chance to build up Isa savings large enough to fund their retirement and many people will grab it — especially as there will be no tax to pay on the income in retirement. But with the Chancellor’s coffers looking a little bare, this is probably one for the future.
However, there is something that Mr Osborne could do that would cost little and boost the savings of six million children. He should change the rules and allow money stuck in closed Child Trust Funds (CTFs) to be moved to Junior Isas. There is no incentive for providers to offer decent rates on CTFs now that no new money is being deposited in them. If nothing is done, savings in CTFs will be left to rot. I am told that overturning this unfairness is a simple matter of overcoming some European legislation. Here’s hoping.