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Naming and shaming banks – will it really get savers switching?

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
08/12/2015

Savings accounts paying paltry rates of interest will be named and shamed by the City watchdog but will this new tactic really help consumers get a better deal?

The Financial Conduct Authority (FCA) – whose aim is to regulate financial markets so that consumers get a fair deal – has made a radical announcement. In an effort to ensure savers don’t get ripped off by leaving their money in low-paying cash accounts, it will periodically report which providers offer the lowest rate of interest.  Basically, naming and shaming the UK’s worst bank accounts.

The hope is that people in low paying accounts will see what a bad deal they’re getting and move their money somewhere better.

It’s not hard to see why the FCA is taking such drastic measures: half of the banks and building societies that it sampled offer interest rates as low as 0.1%.  In other words, an annual return of £1 per £1,000. I was taken aback by that.

The risk for savers is that with rates this low, even a small increase in inflation would result in real terms losses.  This was a position many people would have found themselves in over spring and summer this year.

So, the FCA will require banks and building societies to display more clearly the rate of interest that their customers are getting, and provide reminders when their interest rates are due to change. But the move that could focus minds most is the FCA’s regular publication of the worst interest rates.

But will it work? While I’m supportive of transparency and competition, what we really need is behavioural change among consumers.

The fact that the FCA is having to pursue this so vigorously underlines the fact that it is concerned that too few people are switching away from poor accounts, despite the clear benefits of doing so.

But it can only do so much.  It falls upon banks, building societies and most importantly consumers themselves to do the rest. Banks should avoid paying the lowest possible rate they can get away with, and perhaps the new FCA information will shame them into doing that.

Of course, savers and investors need to take action too, and many are doing so. Interestingly, this includes looking at alternatives to traditional finance, where they can earn a higher return in exchange for taking on some risk. At RateSetter for example, we’ve welcomed 12,000 new individual investors this year alone.

If enough people move away from low-paying accounts, banks will be forced to up their game and the FCA will have been successful.

Rhydian Lewis is CEO at peer-to-peer lender RateSetter

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