Is First Direct conning us with its Isa rates?

Q First Direct's mini cash e-Isa has an introductory rate of 6.08%, fixed until October 6 2005, after which it falls to 4.22%.

First Direct claims that this introductory rate is 6.25% AER, but this cannot be justified because the AER must be the rate that would be achievable if the money were left invested for a full year. The introductory rate lasts for less than a full year and will be replaced by a lower rate.

The AER must be an accurate reflection of the rate achieved over the full year, not an extrapolation from a shorter timescale. I complained to First Direct but it hasn't sent a written justification. Why should it be allowed to get away with this scam?

GG

A On First Direct's website, it is made clear that the 6.25% rate is available only until October 6. The reason it is quoted at all is to make the rate comparable to other, non-tax-free savings accounts, where 22% of interest earned is lost to tax.

Lots of Isa providers quote their rates in this way, to ensure customers aren't fooled into thinking a taxable account is paying a higher rate. The lower rate that kicks in on October 6 is also quoted with an AER, even though that rate clearly isn't available for a year, either. The idea is not to give the impression that the rate is available for 12 months but to indicate what that rate is worth after basic-rate tax has been taken into consideration.

I'm not certain First Direct has broken any advertising rules here, as it makes no attempt to conceal the rate payable over the life of the account - though the bank should answer your letter of complaint with an explanation similar to the one I've just given you.