The majority of ISA savers are missing out as a result of not switching their savings to accounts that offer higher rates, a consumer organisation has claimed.
According to Consumer Focus, as many as two-thirds of savers who have opened cash ISAs on a ‘teaser’ introductory rate subsequently lose out because they do not move to a provider offering better rates of interest once the teaser period has lapsed.
Consumer Focus said that many of the best buy cash ISAs offer introductory bonus interest rates that fall after a fixed time, usually 12 months, often leaving savers with uncompetitive accounts.
Cash ISAs can pay as much as 3 per cent interest, but the average interest rate is just 0.43 per cent.
The study carried out by Consumer Focus found that almost a quarter of cash ISA savers did not know whether their accounts had a bonus rate, while a third of account holders with an introductory rate weren’t sure if their rates had expired or not.
More than a third of savers who hold a cash ISA have had it for more than five years, suggesting they are losing out on interest that could be gained by switching.
Oliver Morgans, a financial services expert at Consumer Focus, said: “Around one in three of us has a cash ISA so millions of people are likely to be losing money by not switching when their bonus rate ends.
“Sadly, ISA customers have to watch banks like a hawk if they are to get the best deals. With consumers getting a paltry return as low as 0.1 per cent on some accounts, our advice to savers is to check your rate and if you are not happy vote with your feet and switch to an ISA that pays more.
“We want to see banks introducing simpler products which work for the majority of savers. People shouldn’t need to be full-time consumers permanently switching accounts to get fair rates.”
A report from the Office of Fair Trading showed that only about 11 per cent of ISA savers move account in an average year.
Andrew Hagger, of financial website Moneynet, commented: “The situation is that best-buy rates of 3 per cent plus are only being taken by a certain number of people. The other people who are not checking their rates are getting a really poor deal and are subsidising the people who are getting the top rates.
“It can be a huge amount of money. If you have got a £5,100 sum and your rate drops from 3.25 per cent to 0.5 per cent, your annual interest drops from £175 a year to £25, so it is a huge amount.”
The banks, however, counter that savers are properly informed of changes in interest rates.
The British Bankers’ Association said: “Banks automatically notify customers if there are changes resulting in materially lower rates specifically so they can switch their funds.
“Banks provide a variety of savings products to suit people’s needs and have no interest in keeping customers anything less than fully informed about the products they use.
“Information about alternative products is readily available in branches, online and from a variety of other sources, including newspaper best-buy tables and comparison websites. Interest rates vary depending on the amount customers have to save and the time they can afford to leave the cash untouched. As with any product or service, it always pays to shop around for the deal which is best for you.”