- From 31 July, ‘closed products’ will have to comply with Consumer Duty regulations in the same way as those that remain open to new retail customers.
- These are otherwise known as zombie products.
- Firms must consider whether they offer fair value under the new rules.
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“From 31 July, products that are closed to new savers or investors will have to meet the same duties to consumers as those that are still on sale. But don’t be lulled into a false sense of security. These zombies could still eat your nest egg. If you’re going to protect your assets, you need to keep them out of their clutches.
Closed products are known as zombies, because at first glance they may seem like a perfectly ordinary product, but look a little closer and they’re marching unthinkingly to the bitter end. Because they can’t attract new customers, they may offer low rates or high charges, and could end up consuming your cash.
Child trust funds
One common zombie product is child trust funds, which were given to every child born between September 2002 and January 2011. They were a useful way to save and invest tax efficiently for the future, but when the accounts were replaced with the Junior ISA in 2011, existing CTFs transformed into zombies.
CTFs and JISAs have some things in common, including the tax benefits, the annual limit and the fact the money is still locked away until the age of 18. However, if you’ve opted for a cash CTF, you can get a better rate in a JISA, and if you’re in an investment CTF, you may be paying over the odds. Some JISAs are now available without charges – which could save you significant sums. Transferring to a JISAs will likely save money and provide much better choice and because you can switch from one to the other, there’s no reason to stick with the zombie.
Help to Buy ISAs
Another common zombie is the Help to Buy ISA. It has been more than four and a half years since it closed to new entrants, and although bonuses can be claimed until 2030, the numbers are dwindling fast. As ever with a closed market, the savings rates aren’t much to write home about, with the best available for transfers (not restricted to existing customers) offering just 2.75%.
The cap on the value of the property you can buy through the scheme is a major issue too. Outside London you can only buy a property worth up to £250,000 with a Help to Buy ISA, and the average first-time property is creeping closer to this figure. The savings limits haven’t changed either, and after the first month are limited to £200 a month. The government bonus is also capped at £3,000, so if you take full advantage of the scheme – paying in £12,000 and getting a £3,000 bonus – in total you can build a deposit of £15,000. It’s less than 6% of the price of the average property.
If you’re worried about the £250,000 limit in a Help to Buy ISA, or you want to pay in more each year, it’s worth considering transferring to a Lifetime ISA – as long as you’re aged 18-39 and have at least a year until you want to buy. The value of a property you can buy through the scheme is capped at a more generous £450,000, and allows £4,000 to be paid in each year. If you have longer than five years before you want to buy, Lifetime ISAs also offer a stocks and shares option, which provides more potential for growth over the longer term.
It’s vital to understand how the switch works though, because money that’s transferred will come out of your annual LISA allowance. However, given the advantages of the LISA, it may well still be worth making the move.”
