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ISAs: CAT Standards

March 18, 2002

In this article we're going to look at the system introduced by the Government to make sure that the fairest ISAs get noticed. It's called a CAT standard (and we're not talking the feline variety here!).

The CAT mark is purely voluntary and you will often find that ISAs will offer two similar products -- one that has the CAT mark and one that doesn't. The initials refer to Charges, Access and Terms, and anyone offering a CAT-marked ISA is subject to special rules that are designed to make ISAs cheaper and easier to understand.

However, do bear in mind that ISAs without the CAT mark do not have to follow these rules so watch out for hidden charges. You should also realise that CAT ISAs do result in restrictions for you, the investor. So, the CAT ISA means:

CHARGES

  • Cash ISA -- no charges allowed at all
  • Shares ISA -- no more than 1% a year in charges
  • Insurance ISA -- no more than 3% a year in charges - three times higher than a shares ISA!

We're going to ignore the Insurance option from hereon. Not only do few companies offer this product but the charges are absurdly high compared to the alternatives. Only a tiny proportion of money invested in ISAs since they were launched has gone into insurance funds. To be honest, they've been a complete flop, and deservedly so!

ACCESS

  • Customers must be able to get access to their money within seven working days.

TERMS

  • Interest rates for the cash element are never allowed to be more than 2% below the Bank of England Base Rate.
  • ISA fund managers are not allowed to set an investment level higher than a £500 lump sum or £50 a month. So, if you want to put lump sums into a CAT-marked ISA, as and when you have the money, you will never have to find more than £500 (and some funds require far less). And if you want to pay by monthly instalments you will never have to pay more than £50 a month (again, some funds require even less).
  • CAT-marked Share ISAs have to have at least 50% invested in the ISA-qualifying shares and securities of the European stock market. (Non-CAT ISAs can have all the stocks and shares invested anywhere in the world.)
  • Units must be single-priced. Than means that, in a Shares ISA, a fund cannot charge you a different price for buying and selling units.

More: Find out how to get your free ISA guide | The ISA Centre