Fifteen million cash ISA savers could be losing out on up to £3billion a year in additional interest, according to Consumer Focus, which has submitted a 'super-complaint' to the Office of Fair Trading (OFT) about the way the cash ISA market operates.
The campaign group is calling on the OFT to address a number of issues, including the delays savers face with transferring their accounts and 'bait pricing' – the practice of offering attracting bonus rates that typically expire after a year.
An investigation by Consumer Focus has revealed that a third of the UK population currently subscribe to a cash ISA, with savers viewing them as safe, long-term savings vehicle, but on average savers are getting less than 0.5 per cent in interest.
This rate follows the introductory bonus rate often paying in excess of three per cent, which typically expires after a year, leaving savers 'with uncompetitive long-term rates'.
Although savers can make an ISA transfer to switch to a more competitive account, Consumer Focus claims that savers face 'unfair obstacles' when they attempt to transfer their ISA holdings, with a third of savers saying it took longer than five weeks to transfer their cash ISA, while only one in 10 managed to complete their transfer in less than two weeks.
Commenting, Mike O'Connor, chief executive of Consumer Focus said: "At less than half of one per cent interest the average ISA saver is getting a poor deal.
"Of course, people could vote with their feet and switch to the 3 per cent deals currently on offer but we are concerned that the cumbersome transfer process and poor information provided by the banks inhibits doing this. There is evidence that very few people do actually switch their accounts. It beggars belief that in 21st century Britain it takes a month to transfer information and funds from one bank to another."
In the last tax year, only 12 per cent of cash ISA holders switched their accounts, while campaign group claims that many savers do not how much interest their account currently pays.
"Providers are using consumer inertia and confusion to drop ISA rates faster than on other accounts. The way providers inform customers about their accounts makes it difficult to get the best deal," Mr O'Connor added.
Welcoming Consumer Focus' complaint, Peter-Vicary-Smith, chief executive of Which? said: "For too long, consumers have had to endure savings rates being reduced by stealth and lengthy delays in transferring between ISAs to get a better interest rate.
"For the market to function properly, consumers need to know what interest they are receiving and to be able to shop around and transfer their money in order to get the best deals."
© Fair Investment Company Ltd