Investing In ISAs: Top marks to the standard bearers

AN INDIVIDUAL Savings Account boasting a government CAT standard is supposed to be "straight forward, clear and fair and offer decent value". But despite the heavy publicity given to the voluntary standards, and the Government's stated desire to see companies competing to beat them and bring down the cost of saving, few ISA companies will be using them.

Some have products that would qualify or be able to qualify with a little tweaking but are in effect boycotting the scheme. Firms not offering CATmarked ISAs say that, far from improving clarity in the crowded savings market - which is another government aim - CATmarks will confuse people into thinking they are a performance guarantee.

They also complain that the tough criteria the standards lay down means they can be used only on a very narrow range of products. To qualify for a CATmark an ISA has to match or better criteria laid down by the Government on charges, access to funds and terms it offers.

The Treasury argues the standards are "challenging but sustainable". CAT standard stocks and shares ISAs can charge no more than 1 per cent per year of the amount of money invested, and have a minimum investment of no more than pounds 500 for a lump sum or pounds 50 per month.

Cash ISAs can levy no charges other than for replacements such as lost cards, allow withdrawals in no less than seven days and have a minimum investment of no more than pounds 10. They must pay interest of no less than two percentage points below Bank of England base rates and raise rates within a month of the Bank doing so.

Abbey National is launching a CAT standard ISA paying 6 per cent on deposits from pounds 1, rising to 6.5 per cent on pounds 3,000. But the bank says that while it is offering an insurance-linked ISA, this will not be CATmarked.

CAT standard insurance ISAs can charge no more than 3 per cent a year, have minimum premiums of no more than pounds 250 for a lump sum or pounds 25 a month, and have surrender values after three years that must at least return the value of what has been paid in.

The Research Department, a financial research firm, has analysed over 128 "mini" ISAs, which offer just one of the three components that can make up an ISA, and 106 "maxi" offerings, which must provide the stocks and shares element and can add a cash or life insurance or both.

It found just 12 out of 86 stocks and shares mini ISAs offered a CAT standard option, none of six insurance mini ISAs offered CAT standards, and just 39 of 83 cash mini ISAs, offered CAT standard options.

As for Maxi ISAs, just 13 of 106 with the compulsory stocks and shares element boast a CAT standard, while none of six with a life insurance element, and only 15 of 43 with a cash element, have them.

Of those CATmarked stocks and shares ISAs on the market, nearly all will be so-called index trackers, which aim to "track" the performance of a recognised stock market index, such as the FTSE 100.

Norwich Union and Standard Life, however, will be offering "actively managed" funds with CATmarks, which aim to beat either a stock market index or an industry performance benchmark.

But many firms wanting to offer stocks and shares CATmarked products have been forced to cut charges.

Virgin Direct had to drop the pounds 2 fee for monthly contributions into its index-tracking PEP from its index tracking ISA replacement. Legal & General also ditched monthly fees on three CATmark qualifying funds, Norwich Union had to remove initial charges from its three qualifying actively managed funds, and Standard Life had to cut the annual management fee on its actively managed CATmark fund from 1.5 to 1 per cent.

Gordon Maw, Virgin Direct's marketing manager, says the company believes CATmarked ISAs will attract enough savers to make them pay. He says: "We have got through the difficult period and now it looks like CATmarks are established as an important part of the ISA."

Gartmore is one company that could easily offer a stocks and shares ISA with a CATmark but refuses to do so. A spokeswoman says: "Although we agree with improving clarity we think customers will see CATmarks as some kind of guarantee.

"We think CATmarks are encouraging people to go in without explaining the dangers, they are all right for cash ISAs but not stocks and shares."

Other big-name fund managers such as Jupiter, Perpetual, and Schroders, which do significant business with independent financial advisers, have also decided to snub the CATmark scheme.

But Neil Liversidge, investment adviser at DBS, an independent financial advice network, says: "I think more will come on the market as more companies look to sell direct to the public rather than through independent advisers."