Flaws in the savings market, as people fail to save for a rainy day
At the same time, a report by GoCompare Money revealed that around a quarter of people have no savings at all, showing more needs to be done to encourage saving.
In 2015, the regulator found that 80% of easy access accounts had not been switched in the previous three years, potentially leaving people earning low rates on their savings.
Efforts to solve the problem, including publishing the rates on existing accounts – which showed the average rate on a closed branch-based account was 0.1% – and seven-day switching for ISAs. The Financial Conduct Authority (FCA) said the problems hadn’t been solved by these so-called ‘Sunlight Remedies’.
The GoCompare Money survey found that while 50% of UK adults save on a regular basis into a bank or building society account; a quarter don’t have any savings at all to cover unexpected bills or emergency costs.
The average sum earmarked for ‘rainy day’ emergencies was £1,300 but, 42% of UK adults have £500 or less set aside. Trust remains a significant issue; over a fifth (21%) of those surveyed said after the credit crunch they no-longer trusted the sector; 37% think that banks have done nothing to improve their reputation since the financial crisis; and 13% of people have looked at alternatives to traditional bank and building society savings accounts.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “While it’s good news that (the FCA) is trying to improve things, the fact that it is planning more consultations and proposals means there won’t be a solution overnight.
“This is going to be a tough nut to crack, so it’s important to take action with your own savings as soon as possible. You can put your emergency cash savings safety net into an easy access savings account paying up to 1.35%. After that it’s important to work out the most sensible period of time to lock your savings away. You can, for example, get up to 2.1% if you fix for two years, and 2.56% if you fix for five. Because while savings rates are hardly a reason to be cheerful at the moment, it doesn’t mean you need to stick with a savings account that’s profoundly depressing.”
Georgie Frost, consumer advocate at GoCompare, said; “A rainy day savings fund is not just a nice thing to have, it is essential…The perceived wisdom is to have at least three months’ worth of outgoings saved as an emergency fund. Official figures set the average monthly salary around £2,300 – which suggests that many people’s ‘rainy day’ savings typically fall short of the ideal target.”