BRITAIN’s banks and building societies have been threatened with a competition inquiry after it emerged that savers are having to wait up to nine months to open cash Isas.

Institutions have been inundated with Isa applications as savers seek safety following stock-market falls. Many big names, including Barclays and Nationwide, have been unable to cope with the volumes.

Nationwide has told customers that one of the reasons for the delays is that Revenue & Customs (HMRC) does not allow electronic Isa transfers. However, the Revenue dismissed this and the Liberal Democrats have threatened to recommend the industry for referral to the Competition Commission.

The Revenue said: “We have categorically not barred electronic transfers – HMRC’s Isa regulations do not require transfers to be made by cheque.”

Vince Cable, the Liberal Democrats’ Treasury spokesman, said: “Unless action is taken in a suitable time frame this should be referred to the Competition Commission.”

Switching has become important as providers cut rates on variable-rate Isas.

The best Isa rate for transfers at the end of the 2007-8 financial year was from Lloyds TSB at 6.5% on transfers of £9,000. It is now at 5% – a loss of £135 in interest a year. Barclays was offering 6.5% for new Isas only – that rate now stands at 6.25%.

Martin Lewis of Money-savingexpert.com, the comparison site, said: “This plays right into the hands of the Isa providers who are going to be able to keep people on inadequate rates.”

The problem arises when transferring Isa cash by cheque, which heightens the potential for lost documents.

In June Nationwide said it would not accept any more Isa transfers from other providers until the backlog cleared.

However, customers continue to report problems, which extend to moving savings from one Nationwide account to another and transferring money to another bank.

Peter Bennett, 69, of Plymouth, had a one-year fixed-rate members’ bond with Nationwide that matured in December. In November he told the building society he wished to open a new Isa with his £24,000 savings.

Nine months later Bennett’s account has still not been opened. He has made five visits to his local branch and two lengthy telephone calls to the Isa helpline in an attempt to solve the problem.

Bennett wrote to A Question of Money last month and Nationwide subsequently offered £200 compensation as reimbursement for lost interest – but the Isa still isn’t open.

Nationwide admitted the Revenue has no objection to electronic transfers. “We know HMRC isn’t stopping us doing it electronically,” it said.

Apacs, the banks’ clearing service, says Isas can be transferred electronically.