High Street Banks Accused of Blocking Savers from Better Rates

High street banks are under fire for failing to implement a new tax-free savings reform, leaving customers locked into lower interest rates.

Reform Overview

In April 2024, a reform by HM Revenue and Customs (HMRC) allowed providers to offer customers multiple cash Individual Savings Accounts (ISAs). This provided savers with the flexibility to split their savings across multiple providers and secure higher interest rates.

Bank Inaction

However, major banks including Lloyds, NatWest, HSBC, Barclays, Santander, Coventry, and Leeds have failed to update their IT systems to support this reform. As a result, savers are unable to open multiple cash ISAs with the same provider.

Impact on Savers

This inaction has created barriers for savers seeking better returns on their savings. By limiting access to multiple cash ISAs, banks are effectively restricting savers to lower interest rates offered by their current providers.

Bank Arguments

Banks argue that the new rule is optional, not mandatory. They claim that implementing flexible ISA access requires significant changes to their IT systems.

Criticism from Experts

Consumer advocates and industry experts have condemned the banks' inaction. They argue that the restrictions on opening new accounts deny savers access to better returns and are "not fit for purpose."

Limited Competition

With the largest banks failing to adopt the reform, smaller lenders have gained a competitive advantage. Banks like Paragon Bank have introduced innovative products like the "ISA wallet," allowing savers to diversify their investments across multiple accounts.

Call for Action

Consumer champion Jane Hawkes urges banks to prioritize IT upgrades and support flexible ISA access. She emphasizes that savers should be given the opportunity to maximize their returns by diversifying their savings.

Bank Responses

HSBC confirms that offering multiple cash ISAs is an "optional feature" and is under review. Lloyds states that customers can open an ISA after exhausting their allowance with other providers. NatWest, Santander, Barclays, Coventry, and Leeds have not commented on the matter.

Conclusion

Banks' failure to implement the ISA reform is a disservice to savers. It has restricted access to better interest rates and hindered competition in the savings market. Urgent action is needed from banks to ensure that savers have the flexibility and opportunities to maximize their returns.