Are cheque transfer ISAs a con?

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
6 replies 593 views
eddaedda Forumite
1.1K Posts
500 Posts
✭✭✭
edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
Why do financial institutions do ISA transfers by cheque? :confused:

I've heard reasons such as the systems can't cope or to ensure money laundering rules are met - but loads of other money transfers are made between accounts, so what makes ISAs different?

This seems to lead to 2 main problems:
1. Loss of interest by the person with the money (not the bank or building society)
2. !!!! ups in the transfer itself - latest experience of this was 'the cheque has been lost' :mad:

Is this just another way to discourage transfers and gain more interest?
After all, we've been told that cheques are on the way out (Shell, Asda etc).

Replies

  • SillychuckieSillychuckie Forumite
    1.2K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    ✭✭✭
    Because they earn money that way.
    The longer the money is 'in transit', the longer they keep it without paying interest to you for having it.
    They also send the cheques by 2nd class post...
    Kind of sums it all up.
  • dunstonhdunstonh Forumite
    106.7K Posts
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    ✭✭✭✭✭✭
    Why do financial institutions do ISA transfers by cheque?

    Less chance of the money going missing. i.e. paperwork turns up with cheque attached. With bacs, you have to tie the paperwork upto a bank account that would be getting all sorts of transfers into it and how do you match up one payment with another quickly?

    IFAs have asked this before of providers in other areas where cheques are issued the above is the usual response.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • masonicmasonic Forumite
    15.9K Posts
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    ✭✭✭✭✭
    Because they earn money that way.
    The longer the money is 'in transit', the longer they keep it without paying interest to you for having it.
    I thought it was pretty standard for interest to be backdated to the date written on the cheque (at least that's what happened last time I transferred). A BACS transfer would take a minimum of 3 working days, so loss of interest would actually be less with a cheque, surely?
  • MarkyMarkDMarkyMarkD Forumite
    9.9K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    ✭✭✭✭
    Quite right, masonic.

    The argument about loss of interest is wrong. If the cheque is posted first class, the interest will be credited sooner than if the payment was via BACS. If the cheque is posted second class, the interest will be credited around the same time as if the payment was via BACS.

    I'm sure that dunstonh is right that it avoids the risk of the payment and the paperwork becoming separated and hence the risk of funds getting lost.
  • eddaedda Forumite
    1.1K Posts
    500 Posts
    ✭✭✭
    I've obviously been unlucky in the past then.

    On one ISA transfer, the receiving building society didn't back date the interest - in fact they credited it from the day they actual got around to processing the cheque (14 days after they received it). I did complain of course and it took several phone calls and a letter to get the correct amount added to the account.

    Recently (the matter hasn't been sorted out yet) the paperwork arrived but there is some confusion where the cheque is. Either the 1st provider didn't send it or the receiving one can't find it.

    I suppose the moral is to keep a very close watch on when the transfer takes place; check all dates carefully; and do your own interest calculation to make sure you don't miss out.
  • MilarkyMilarky Forumite
    6.3K Posts
    Part of the Furniture 1,000 Posts Photogenic
    ✭✭✭✭
    Transfers are becoming much more popular and used I'd guess. At the very least ISA transfers could be defined in regulations to prevent interest being earned by anyone other than the ISA investor. There is clearly lots of slack in those rules at present but banks and other organisations are becoming more sensitive to complaints and some (like the Halifax) do actually give this as a verbal assurance.

    Let's hope that before many more revisions of the banking code (which will pick up on the elimination of the 'float' for BACS-type transfers) somethnig more 'express' will be required of all ISA providers.
    .....under construction....
This discussion has been closed.
Latest MSE News and Guides

Energy price cap could be extended beyond 2023

New plans have just been announced by the Government

MSE News

Cheap contents insurance for tenants

DON'T assume your landlord covers you

MSE Guides

Summer sizzlers round-up

Incl £2ish sun cream & £1.50 disposable BBQs

MSE Deals