Kevin Mountford, Head of Current Accounts & Savings

Investing in an individual savings account (Isa) makes perfect sense - you can invest up to £3,600 a year in a cash Isa and the interest is not taxed. And the rules state that you can transfer money from one cash Isa to another without losing the tax-break, which is great as rates on many accounts lose their competitive edge over time. But for many savers, making an Isa transfer is easier said than done.

What is causing the problems?
According to Nationwide, there has been overwhelming demand for cash Isas this year - the provider reports an increased uptake of almost 400% compared to the same three-month period in 2007. The Nationwide Instant Access Isa pays up to 5% and it claims that demand has been so overwhelming that it can no longer deliver the service its members expect if it continues to take transfers.

Increased demand however, is not the only problem. The Banking Code, the self-governing rules established by the industry, has no specific guidelines on Isa transfers and the city regulator, the Financial Services Authority (FSA), has no control over the issue. Though HMRC places a 30 day 'limit' on Isa transfers, this appears to be little more than a guideline as there is no punishment for providers that fail to conform.

This means the provider can sit on your money. You can't withdraw it as you'd lose valuable interest and so instead savers are left to contact call centres where they are often given conflicting stories about whether their existing provider or the new provider is to blame. The process takes even longer because banks still use cheques to send your money instead of electronic transfers.

What can you do to solve the problem?
As an individual, your first port of call should be to contact your bank or building society and complain - put in a complaint with both providers if it isn't clear which one is responsible for the delay. See what response they offer and whether or not they are willing to offer a timeframe to sort the issue out.

If you're not satisfied with the response offered, get in touch with the Financial Ombudsman Service (FOS) by visiting the website or by calling 0845 080 1800. The Ombudsman should be able to offer advice about your next course of action, but banks and building societies have up to eight weeks to respond before they can take their case to the FOS.

There isn't a lot that can be done directly to solve the problem on a wider scale. Both the Building Societies Association and the British Bankers' Association are said to be examining the issue, but there is no timeframe on when or if things will improve.

Are transfers still being accepted?
Despite the issues in the market, some providers are still accepting Isa transfers and with savings rates so competitive at the moment, it's well worth moving money invested in previous tax years if it's in an account paying a poor rate of interest.

The leading Isa rates are available to those who are willing to lock their money away for a fixed period of time. The Skipton Building Society Fixed Rate Cash Isa offers a rate of 6.50% that is fixed until December 2009 and withdrawals made within the fixed term are subject to 90 days loss of interest. Halifax's Fixed Rate Isa Saver pays 6.30% and you can opt for a one or two-year term. If you want to withdraw money during that time you will lose 180 days' interest.

If you prefer to have regular access to your cash, Icesave's Easy Access Isa, has the most competitive rate at 6.10% - Barclays' Tax Haven Isa and HSBC's Cash e-Isa are both offering a higher rate at 6.25% if you want to invest new money but neither accept transfers. Also, the HSBC deal is only available if you have or open, an HSBC current account.

Other options if you want an easy access account that accepts transfers in are Birmingham Midshire's Direct Isa Issue 3 and Alliance & Leicester's Easy Isa - both are paying 6.0%. However, A&L will only accept transfers from non-A&L accounts.

What does the transfer process involve?
If you're unsure how the Isa transfer process works, here is some information to put you on the right track:

• Isa transfers are completely free.
  
  
• The process is supposed to take no more than 30 days.
  
  
• The current year's Isas must be moved as a whole - only previous years' Isas can be split between different providers.
  
  
• You may be charged a penalty by your existing Isa provider so work out if you'll be better off switching to the better interest rate once the fee is paid.
  
  
• You can transfer money held in a cash Isa into a shares Isa but not the other way around.
  
  
• It is not normally possible to make a contribution to an Isa while the money is being transferred - so make it before the process begins if possible.
  
  
• You should receive a letter when the Isa transfer process is complete.

Have your say: Have you had problems with opening or transferring an Isa? Find out what your next move should be and discuss your experiences with the members in our forum.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

Relevant Links

• HSBC Cash e-Isa – 6.25%
• Icesave Easy Access Isa – 6.10%
• Alliance & Leicester Easy Isa – 6.0%
• Clare Francis interviews the Chief Ombudsman: How to complain
• Compare more than 4,000 UK savings accounts including Isas