Britain’s savers are receiving a poor deal from the banks, according to the financial regulator, which found that around £160bn in deposits is earning equal to or less than the Bank of England base rate of 0.5%.
Savers find it difficult to compare accounts and switch providers, the Financial Conduct Authority said in its analysis of the £700bn total savings markets. It found that 80% of easy access accounts have not been switched in the last three years, with many put off by the expected inconvenience. In future, banks and building societies will have to display prominently in communications to customers the lowest rate of interest they are receiving.
But the FCA stepped back from banning controversial teaser rates, that lure savers in to accounts with high introductory interest which then falls steeply after six months or a year.
Christopher Woolard, director of strategy and competition at the FCA, said: “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 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. It also found that the major banks have considerable advantages over other providers because they can attract most easy access balances despite offering lower interest rates.
Banks and building societies will be told to be more transparent in dealing with customers, Woolard said. “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.”
The FCA said it 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. It also wants to make it easier to provide a way for consumers to view and manage accounts with different providers in one place, and make the switching process as easy as possible. Currently banks have 15 days in which to switch a cash Isa, but the FCA wants that reduced.
Which? executive director, Richard Lloyd, said: “For too long, banks and building societies have left customers trapped in savings accounts paying woefully low interest rates and losing out on billions. More than 50,000 people supported our campaign to get people a better deal on their savings and we now expect to see the industry working with the regulator to make these recommendations a reality as soon as possible. The banks must quickly start playing fair and help consumers get a good deal.”
