I transferred an ISA and demanded no gaps in interest - I won!

Consumerist

jem16 wrote: »

I quite clealry said I would love to see interest being paid the whole time. However there is a right and a wrong way of getting it achieved.

What do you suggest is the right way ?

You say you would love to see interest being paid the whole time but seem prepared to support the banks in their determination not to. Do you think that your approach will change anything ?

jem16

Consumerist wrote: »

What do you suggest is the right way ?

1.Using a proper campaign such as the one by Consumer Focus which has managed to get the transfer time down to 15 days, has seen some banks introduce electronic transfers and has managed to get OFT to at least "suggest" that no interest should be lost.

http://www.wyliebisset.com/cgi-bin/item.cgi?id=32339&d=601&h=160&f=260

2. Transfer to banks that pay interest either from the date that the previous provider released the funds, such as Nationwide (who have always done it) or the Halifax which will pay from date of receiving application. Then other banks may follow rather than be left behind.

http://www.halifax.co.uk/savings/cash-isa-promise/

I would also like the ability for the consumer to be able to transfer ISA funds themselves in just the same way we transfer any money between accounts.

You say you would love to see interest being paid the whole time but seem prepared to support the banks in their determination not to. Do you think that your approach will change anything ?

I think it will achieve far more than backing the banks into a corner by threatening them with a £500 charge if they don't do what we want. Banks will simply find a way round this just like they did when they started making the best rates only available to new money.

MarkyMarkD

There's a lot of posts there so apologies for not quoting the relevant people's comments in responding.

The OFT's views count for nothing. The OFT doesn't make the law. It can try to persuade financial institutions to change - as it has succeeded (a tiny bit) on this ISA transfer issue. It can suggest what it thinks is right - as it did with bank charges, and then lost in court.

Of course it is true that the ISA transferring bank benefits from two/three working days' interest whilst the cheque is "in the post". That is a trivial and pathetic amount of money even for the largest ISA transfer. (About £20 on a 3 days transfer of £50k; and if you've got £50k you shouldn't be crying over £20).

But the same applies to any withdrawal via cheque from any savings account. And, contrary to what some have said, the Ts & Cs will specify that interest is paid until the cheque is issued, or the account closed. It's not "made up at the time the ISA closes".

Paying interest "the whole time" is impractical because the date the cheque will clear is unknown. And it's not the receiving institution's fault. Whilst Nationwide (presumably the one referred to) do backdate like this, they are losing money by doing so and that is why they were unique until Halifax copied them and claimed it as a unique feature.

ISAs cannot be transferred electronically, because (despite what HMRC say) information has to be sent along with the money. If the info and the money is sent separately (as HMRC claim can be done) it would lead to a disastrous mess, because the two would end up separated in x% of cases, which would lead to the transfer breaching HMRC's own ISA rules. That is why cheques will be used, until a suitable electronic transfer process is built, at the cost of the banks, because HMRC haven't bothered to build one in the public interest. The ball for this one lies firmly in HMRC's court IMHO. A trial system has been running for some time but very few participants have taken part - because, to be frank, why waste the money when you don't have to?

Above all, I don't see why there is this righteous belief that transfers should be cost free. That's not reality. Transfers cost the banks money (like any other banking transaction, but far more so because of the administrative faff involved with ISAs). It's fair that some of that cost is borne by customers.

MarkyMarkD

jem16 wrote: »

... or the Halifax which will pay from date of receiving application. Then other banks may follow rather than be left behind.

Halifax's new promise really isn't well thought out and does not make sense.

If I was another bank, I would deliberately delay transfers to Halifax for as long as possible. In fact, if I was a customer I would tell my other bank to delay it for as long as possible, as I'd be earning interest from both banks.

I also don't see how this is acceptable to HMRC as there is tax-free ISA interest being paid on money which is also earning tax-free ISA interest from the other bank at the same time. That can't be right!

pqrdef

MarkyMarkD wrote: »

The OFT's views count for nothing. The OFT doesn't make the law.

Clearly the regulatory framework needs some work. But these Offices are statutory bodies and they represent a perception, enshrined in law, that retail traders should submit to regulation.

If companies are going to rely on the absolute letter of the small print when doing business with retail customers who can't be expected to have a professional understanding of the implications of the small print, then somebody needs to regulate what can be put in the small print.

The alternative is to say that Jack and Jill Average are either (a) available to be ripped off, or (b) disenfranchised from participating. Perhaps they should run along and leave banking to the big boys, and stick to Post Office Card Accounts and National Savings at 0.1%.

MarkyMarkD wrote: »

But the same applies to any withdrawal via cheque from any savings account.

I expect it does, but it needn't. The account should be debited when the funds are transferred during the cheque clearing process, not when the cheque is written.

An ISA transfer, even if it's a whole-balance transfer, doesn't have to involve the closure of the old account. I suspect banks often close accounts when no such instruction is given and there's nothing in principle to stop the customer re-funding the account, in the same or the next tax year. So there's really no reason why interest can't accrue until the cheque is drawn.

masonic

MarkyMarkD wrote: »

ISAs cannot be transferred electronically, because (despite what HMRC say) information has to be sent along with the money. If the info and the money is sent separately (as HMRC claim can be done) it would lead to a disastrous mess, because the two would end up separated in x% of cases, which would lead to the transfer breaching HMRC's own ISA rules.

I was under the impression some banks are already sending ISA transfers by BACS.

MarkyMarkD

@masonic

Not unless they are part of the data-exchange scheme, AFAIK. And that's about 4 banks out of over 100 ISA providers, and only if the transfer is both from and to one of those 4 - i.e. probably less than a few percent of transfers are included.

@prqdef

It's all very well saying that "The account should be debited when the funds are transferred during the cheque clearing process, not when the cheque is written." but this is not realistic in lots of ways, and (as I have said before) the amounts involved are trivial. And why should customers who don't close their accounts (or withdraw funds) subsidise those who perform lots of transactions? The loss of a few days' interest is a fair payment for the costs of transferring funds.

In terms of practical difficulties, ISA providers legally have to report the amount transferred to the new provider, at the time they transfer it. So how can they add an indeterminate amount for an unknown cheque clearance time, and include that in the amount they pay and report?

Consumerist

MarkyMarkD wrote: »

And why should customers who don't close their accounts (or withdraw funds) subsidise those who perform lots of transactions? The loss of a few days' interest is a fair payment for the costs of transferring funds.

Surely, the cost of attracting funds should be bourne by those who use them not those who provide them. If these costs were distributed among the loans which they help to provide, the proportional increase in the cost of the loan would be trivial whereas the proportionate cost to the saver is significant.

MarkyMarkD wrote: »

In terms of practical difficulties, ISA providers legally have to report the amount transferred to the new provider, at the time they transfer it. So how can they add an indeterminate amount for an unknown cheque clearance time, and include that in the amount they pay and report?

As mentioned earlier, under the ISA guidelines, the ISA managers should agree a transfer date so that there is a crystal-clear date at which the responsibility for paying interest changes.

Edit
Why, exactly, would HMRC have a problem with the Halifax ISA ?

masonic

MarkyMarkD wrote: »

Not unless they are part of the data-exchange scheme, AFAIK. And that's about 4 banks out of over 100 ISA providers, and only if the transfer is both from and to one of those 4 - i.e. probably less than a few percent of transfers are included.

From what I remember, the four initial banks to sign up to this were big players (Natwest was one), so these transfers may be a little more than a tiny proportion. In any case, that system has been up and running for well over a year now and judging from the lack of adverse publicity it is working. So electronic transfers are certainly feasible. What I don't know is what it would take to roll out this system more widely, but given that the vast majority of ISA transfer problems stem from either loss/delay of paperwork and delays due to manual handling of paperwork, there should be some incentive for other ISA managers to adopt this system.

Consumerist wrote: »

Why, exactly, would HMRC have a problem with the Halifax ISA ?

What Halifax does goes beyond what any other ISA manager does. Effectively, they start paying tax free interest while your ISA cash is still earning tax free interest elsewhere. I could understand HMRC taking issue with that. Why they don't just pay interest from the date the cheque was issued as other providers do I don't know - that still results in no loss of interest and doesn't create this potentially problematic situation.

Consumerist

masonic wrote: »

What Halifax does goes beyond what any other ISA manager does. Effectively, they start paying tax free interest while your ISA cash is still earning tax free interest elsewhere. I could understand HMRC taking issue with that. Why they don't just pay interest from the date the cheque was issued as other providers do I don't know - that still results in no loss of interest and doesn't create this potentially problematic situation.

I don't see any problem here at all.

Halifax is effectively making an extra payment of interest into the ISA on the day it receives the funds; it hasn't broken any ISA rules. The fact that another manager has paid interest before the ISA was transferred is irrelevant. There is no question of receiving interest from both managers at the same time because it simply does not happen; it is just promoted that way because the additional payment is proportional to the time taken to transfer the ISA.

It's no different to the Santander £100 switching incentive or, for that matter, the £5 per month on the Halifax Reward current account except that, in these cases, Santander pays HMRC an additional £25 for every £100 it pays into a current account and Halifax pays an additional £1.25 to HMRC each time it pays £5 into a Reward current account. Nobody seems to have any difficulties with these additional interest payments.