Regulator proposes new minimum savings rate
The Financial Conduct Authority (FCA) has today launched a consultation into combating the issues faced by customers who stay with the same bank for a long time and do not switch.
These customers often receive lower interest rates on easy access cash savings products than those offered to new customers.
Banks use introductory or teaser rates to entice new savers, but these rates plummet – sometimes to as low as 0.05% – after a certain period of time.
The FCA said the proposed basic savings rate would apply to all easy access cash saving accounts and easy access cash ISAs after they have been open for a set period of time, such as a year.
Banks would be able to set their own basic savings rates, which would be the same for all customers.
Christopher Woolard, executive director of strategy and competition at the FCA said: “Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers. While many customers have valid reasons for not shopping around, providers must still treat them fairly, while maintaining competitive rates for those who do.”
He added: “Efforts to encourage customers to switch have had limited impact and we remain concerned about the way firms are treating customers. This is why we are considering the introduction of a basic savings rate for older accounts, which would promote competition and help get customers a better rate of interest.”
FCA research in 2013 found that a third of savers with easy access accounts had held the money in there for at least five years, and 46% had held those accounts for at least two years. It also found that the longer money had been in these accounts, the lower the average interest rate they received.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said a basic savings rate would improve rates for non-switchers, but only “by a smidgen”.
“According to the calculations in this paper, it would boost it by less than 0.1%, so it’s not going to remove the need for savers to shop around to get a decent rate,” she said.
The FCA expects banks to cut introductory rates to pay for higher rates for those who hold accounts for longer periods.
“This will make switching even more important for those who want the best rates,” she said.
Susan Hannums, co-founder of independent savings advice site Savings Champions, said a basic savings rate may make savers “less compelled” to switch.