Consumer clocks should be set now for ISA-switching

Consumer Focus is urging consumers to set their alarm clocks for April 2012 to make sure they switch their cash ISAs to the best-rates available.

Many of the attractive ‘teaser rates' of up to 3.5% offered by banks expire after one year and fall as low as 0.5%.  Consumer Focus research shows almost a quarter of ISA savers don't know if they have a bonus rate and a third of account holders with an introductory rate aren't sure if it had expired.

Despite many consumers having much of their life savings tied up in ISAs and increasing numbers of people using ISAs as an alternative to a pension the average interest rate people are getting is less than 0.5%.  A third of adults have a cash ISA and they have £172 billion in these accounts.  With the best rates on the market reaching up to 3.5%, consumers are missing out on millions of pounds in interest each year by not switching their account to one with a better interest rate.  Even customers who do switch often fail to make the most of their money each year by not switching their account again before the attractive ‘teaser rate' they signed up to ends.

The consumer watchdog is also urging customers who haven't checked their ISA rate in the last 12 months to check now and switch to a better rate.

Mike O'Connor, Chief Executive of Consumer Focus, said: ‘Putting a reminder in your calendar now to shop around for a better cash-ISA rate in a year's time is essential if you want a half-decent return. Unless you check your rates each year you're likely to end up a poor return on your savings.

‘These are not ‘peace of mind' products where you can sit back and relax. Banks tempt customers with decent interest rates which they slash after a year.  It is not enough to switch account once and assume your savings are working hard for you.

‘There is an issue with consumer inertia and greater financial education would help. But the design of cash ISAs does not make it simple for people to save effectively. Consumers need to shop around for good deals, but to do that they need savings products that are clear and fit for purpose. We have to question whether the ISA market is really working as we need it to.

‘We know we cannot all get the top rates for ever but an average return of less than half a percent does not sound like a fair deal.'