In particular, the FCA found around £160bn of the funds held in easy access savings accounts earned an interest rate equal to or lower than the Bank of England base rate of 0.5% in 2013, yet consumers often find it difficult to know what rate they are on, or are put off switching by the expected inconvenience. 80% of easy access accounts have not been switched in the last three years. Research by the FCA also found that simple changes in the timing and content of communications from firms to customers can significantly increase shopping around.
The FCA found balances held in older accounts, which represent a significant proportion of providers’ total savings balances, earn lower interest rates than those in more recently opened accounts. Consumers receive little information about alternative products and often assume switching accounts will take a lot of effort for limited benefit. Large personal current account providers have considerable advantages over other providers because they can attract most easy access balances despite offering lower interest rates.
The FCA is proposing a number of changes to the cash savings market to address these concerns. They will ask providers to be more transparent about how reductions in interest rates on variable rate savings accounts are applied the longer a consumer holds the account. This includes displaying prominently the lowest rate of interest any of their customers receives.
Consumers will also be required to give clearer, more timely information to help them compare their savings account with alternative products and know how to switch if they want to do so. As part of this, the FCA is not proposing to ban introductory bonus rates because they can benefit some customers, but the FCA does expect providers to improve the way they communicate interest rate changes and bonus rate expiry to consumers.
The FCA also plan to provide an easy way for consumers to view and manage accounts with different providers in one place, and to make the switching process as easy as possible so consumers are not put off moving their money to another provider or savings account. They also want a reduction in the current 15 day switching time for Cash ISAs.
Christopher Woolard, Director of Strategy and Competition at the FCA, said:
“In a good market firms should be competing to offer the best possible deal and consumers should have the information they need to help them shop around. We want to see firms making simple information much easier to find. More also needs to be done to reduce the hassle for consumers to switch their savings. The steps we have proposed today are designed to make the market more dynamic, working in everyone’s interest.”
Benny Higgins, Chief Executive of Tesco Bank said:
“There are too many banks who allow their customers to languish on savings rates as low as 0.1%. We do not have any savings customers earning less than today’s base rate and are therefore very supportive of changes that will help customers get a better deal.”
Kevin Mountford, head of banking at MoneySuperMarket, said:
“The FCA’s findings are a clear call for both consumers and providers to take action and get the most out of their savings. The Study reveals that there is a great deal of apathy when it comes to looking after money, with 80% of easy access funds not being switched over the past three years, despite rates being equal to or lower than Bank of England Base Rate at 0.5%. In addition, some providers don’t share enough information about alternative products, especially when it comes to new products with existing customers.
“The regulator’s proposed changes should be welcomed with open arms. By forcing providers to give consumers transparent information, they will be in a good position to choose the right product and maximise their hard-earned cash. Introductory rates are a great bonus for savers to boost the interest on their hard-earned cash, especially at a time of record low rates. However, banks need to be really clear about when these end, so customers know when they need to think about switching.
“If consumers are proactive and shop around, they’ll keep providers on their toes and improve competition, meaning that we don’t just rely on the challenger banks to boost the market. It’s a tough environment for savers at the moment so we need to do all we can to squeeze the best deals out of the banks.”
