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CAT Standards (Charges, Access and Terms), Their Uses and Limitations

The standards depend on the type of ISA / component. To be CAT marked the ISA must meet all the rules, not just some of them.

Charges

In essence no charges allowed except for special services like extra or duplicate statements, or replacing lost cash cards.

Access

Within 7 working days or less, and the minimum transaction cannot be greater than £10.

Terms

• The interest rate must be no lower than two points below base rate.
• Upward rate changes must take place within one calender month.
• There must be no other conditions, such as limits on the number or frequency of withdrawls.

Limitations of CAT products compared to non CAT products

The above sounds all very nice, but from a managers point of view this flexibility carries an inherent cost, (to process a withdrawl costs money, even if the client can't be charged for it). CAT standard ISAs will have to make money. In short this means that the CAT ISA rates will probably be lower than non CAT rates.

For example a manager might offer a very good rate on the basis that the investment was for a minimum term, or that only one withdrawal a year would be made, or that any transactions would incur a transaction charge. None of the above could be called CAT standard ISAs, but, because they would be cheaper to run, might offer better interest rates than their CAT version.

Stocks and Shares

Charges

• The total charge must be no more than 1% of net asset value per year.
• No other charges to be paid by saver.

Access

• Minimum lump sum £500 or less
• Minimum monthly payment £50 or less

Terms

• Investments limited to Unit Trusts, Investments Trusts or Open Ended Investment Companies.
• Units must be single priced (no bid/offer spread).
• Must be at least 50% invested in ISA qualifying shares and securities listed on European Stock Exchanges.
• Proper risk warnings must be given.

Limitations of CAT products compared to non CAT products

Self select share and self managed plans will not be CAT. Many attractive funds will not meet the single price rule, and the geographical limits could be a problem.

Plan managers should be able to offer CAT Index Trackers within these limits, but the expenses of running more active funds will probably mean that most non Tracker ISAs will not be CAT standard.

Life Assurance

Charges

• Annual charge no more than 3% fund value.
• No other charges.

Access

• Minimum lump sum no more than £250
• Minimum monthly premium no more than £25

Terms

• No specific surrender penalties
• Surrender values should , over time, reflect underlying fund values
• After 3 years surrender values should at least return the premiums.

Limitations of CAT products compared to non CAT products

The ISA rules do allow managers to offer protection policies but since these would have low to nil surrender value they cannot meet CAT criteria.

CAT for you, or not?

If you require the CAT facilities, then yes. But if you don't need them and there are better rate non CAT ISAs whose terms are acceptable to you, then non CAT is fine.

And finally:-

CAT tells you NOTHING ABOUT PERFORMANCE. CAT standards do not look at performance, nor are they even a proxy for it. If CAT products were the worst perfroming ISAs in the world they would keep their CAT standard and shout it from the rooftops.

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