Banks To Repay Cash-ISAs When Teaser Rates Expire?

The government's ISA programme has become a victim of its own success. The Treasury estimates that "around 45%” of UK adults have one or more Individual Savings Accounts. The total amount held is estimated at £400bn, half of which is in either regulated bonds or shares while the other half is held in cash deposits that are being eaten by inflation. 

In 2010, Consumer Focus found that the £158bn which was then held in cash-ISAs was earning an average of only 0.41% interest after initial ‘teaser’ rates expire. They also found that 60 per cent of savers never withdraw money from their account. 

Since then, there has been a campaign to get banks to tell customers when teaser rates expire. But what has been the banks' response?

To cut the 'teaser' rates on cash ISAs (even though the government subsidises lower lending rates).

Meanwhile, the Treasury has also resisted calls to expand the range of assets included in ISAs, which would enable savers to diversify and boost innovation and competition in the retail finance markets, as explained here. 

The implicit message from the government is that consumers only have themselves to blame if they don't move their savings to get the best deal. But the government can't have it both ways. It can't introduce an artificial tax incentive and then ignore the systemic issues that incentive creates. The government should either take responsibility for the behaviour that is driven by its incentives, and re-design them accordingly. Or it should withdraw the incentives.

So, short of opening up the cash-ISA market to real competition, what more can be done to remind people to switch their ISA cash?

The last straw would be for all cash-ISAs to be term deposits which can only last for the duration of the 'teaser' rate. When that rate expires, the cash would have to be paid into the customer's nominated 'ISA holding account', from which it can be re-allocated as the customer sees fit. 

Maybe this will lead to 60% of ISA cash deposits earning no interest at all. But only then could the government really claim that consumers who don't seek out the best return only have themselves to blame.

Of Living The iLife, Dinosaurs and Data Portability

I'm not here to sound the death knell for Apple, but the announcement of the iCloud is a defining moment in the company's development. Will it remain a facilitator, or become an institution that exists only to ensure its own survival?

The 'cloud' or utility model for computing is not new. In fact, consumers have arguably held their data and basic applications 'in the cloud' ever since adopting public email services, blogging services and so on. What's new about the iCloud is the automated way in which all a consumer's content may be synchornised and otherwise 'managed' across all the consumer's (Apple) devices.

Seen from a hi-tech standpoint, Apple's move is typically bold and innovative. Yet the centralised omnipotence this may hand to Apple seems an attempt to reverse a 20 year trend toward enabling consumers to control their own data. In this sense, the iCloud appears to be the sort of product a major bank or telco 'dinosaur' would introduce in a last ditch effort to survive by locking-in its customers - and just imagine the complaints there'd be, given the switching challenges for consumers in those markets. So data portability is absolutely critical (along with personal data protection and security), if the iCloud is to be seen as a consumer 'enabler' rather than a predatory move by an aging institution.

But does the mainstream consider data portability to be important? I mean, I'd like to think that Apple's early, tech-savvy customer base would realise it's a bad idea to hold all your applications and data with a single provider, just as financially savvy folk realise the benefit of a fully-diversified investment portfolio. I have an iPhone and an iTunes account; but I also have a Toshiba laptop and a Dell PC. Those computers run Microsoft's Windows and Office package, and I have a Hotmail address; but I very deliberately browse with Firefox, blog via Blogger (Google), Tweet, hang out on Facebook and follow various blogs using Netvibes. And I use Spotify, not iTunes, as my main music service. In other words, I'm not going to let any one provider see, process, hold or control all my data - or even have a complete back-up or copy. That would feel closed and controlling, rather than enabling.

But, ironically, I suspect many people in the mainstream will see the need for software service diversity as a hassle or a problem to be solved by a single service provider, which is why Apple may quite genuinely see a market for the iCloud.

Does that make Apple a genuine facilitator or a dinosaur that's spotted a meal?

Image from eBandit.