The Treasury wants to see banks and building societies introduce a range of simple savings accounts with no bonus rates.
The Treasury has called for a significant overhaul of financial products, ordering banks and building societies to offer a range of simple, ‘vanilla’ deals, with savings accounts first in line.
The move follows a review of simple financial products, led by Mark Hoban MP, Financial Secretary to the Treasury.
The first products that should have a simple range, according to the Treasury, are easy access savings accounts, 30-day notice accounts and life insurance. It wants providers to offer some savings accounts that don't offer bonus rates and give all savers the same interest rate, irrespective of how long they’ve had the account.
The Treasury reckons that it is the complexity of existing deals that holds people back from switching to better deals. Many savers are also apparently unaware that the juicy rates they get at the outset are only temporary and the interest rate will decrease significantly after a period of time.
There will now be a consultation on the plans, and if they get through, the new deals will be available from the start of next year.
A noble idea
The idea of all savings products being completely simple and easy to understand is obviously a noble one.
[SPOTLIGHT]But I fear it misses the point.
Banks and building societies will offer these deals, but they won’t be any good. Or at least, they’ll never be any better than average.
To get a decent rate on your cash, you’ll need to shop around every year or so, move your cash around, take advantage of the deals that still do offer bonuses. All of the top savings accounts at the moment offer introductory bonuses. That won't change just because banks are ordered to offer accounts without them as well.
By pushing savers towards vanilla deals, all that we are doing is condemning them to enduring mediocre deals. In my view what actually needs to happen is to get people to engage with the savings market and to actually take notice of the rate they are getting on their cash.
And if they decide the rate they are receiving is naff, it needs to be made clear to them just how to go about moving their cash, ensuring that it really is a simple process.
By all means make savings deals easier to understand. But by pushing accounts that are simple and middle-of-the-road, all we are doing is ensuring that the savers that use them end up worse off than they could be.
What do you think? Will simple, vanilla products make things better for the nation’s savers? Let me know your thoughts in the Comment box below.
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