Savers are getting a poor deal from banks and building societies according to the financial regulator
The Financial Conduct Authority (FCA) has demanded savings providers offer savers much clearer information on what interest rate their money is earning and make it easier to switch from one account to another.
Following an investigation into the savings market, the financial regulator declared that competition is not working well, particularly for savers who have had their money in the same account for a long time.
It found that a whopping £160 billion of savers’ cash in 2013 was held in easy access accounts paying an interest rate equal to or lower than the Bank of England Base Rate of just 0.5%. However, its investigation concluded that many savers find it difficult to establish just what interest rate their account is paying, or are put off moving their money as they believe it will be difficult.
In fact, 80% of easy access accounts have not been switched in the last three years.
How to help savers
The FCA has outlined four things that it wants to see happen, which it says will help savers get a better return on their cash.
Clear and targeted information
Specifically, the regulator wants to see an improvement in the way interest rates are explained including how a bonus rate impacts that interest rate, potential charges and fees, what a variable rate is, what happens at the end of a fixed rate bond’s term and how to switch or close an account.
It has also suggested including a standardised ‘switching box’ in paper and online statements. At the very minimum this should include the balance and interest rate on the account, other similar accounts from the same provider that offer better rates of interest or features, and what the impact of switching would be.
This will help savers to easily and quickly compare their savings accounts with others available on the market, so they can see if they need to switch.
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Improve switching
The regulator wants switching account to be “as easy as possible” so that no-one is put off from moving their money.
This means speeding up switching Cash ISAs to nearer seven days (it currently takes 15) and encouraging more widespread use of electronic identity verification. A number of the smaller 'challenger' banks told the FCA that current identity checks take too long.
View your accounts in one place
The FCA reckons that large banks and building societies have “considerable advantages” when it comes to attracting savers, as they offer the convenience of having savings accounts and current accounts in the same place. As a result, they can get away with offering lower interest rates.
[SPOTLIGHT]Instead, the FCA wants to make it easier for savers to view and manage accounts with different providers in one place.
However, you can see your various accounts right now with our free, bank-secure Track tool.
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More transparency
Savings providers need to be more up-front and honest about the way they cut interest rates on savings accounts the longer the saver holds the account, the regulator says.
The FCA has two ideas here. It could require savings providers to report statistics on their savings accounts to an independent body, which could then collate and publish them. Or it could force firms to provide specific information about their savings books directly to savers alongside other pre-sale info.
What the FCA won’t be doing
The FCA’s report includes a number of remedies that it considered but has decided against pursuing.
The regulator looked at whether it should extended the Current Account Switch Service to some forms of savings accounts. The Current Account Switch Service ensures that you can move your bank account in no more than seven working days. It opted against this for a number of reasons, including the fact that it is already reviewing just how effective the switch service is working so it would be premature to extend it. There’s also the problem that there are far more savings account providers than current account providers, so extending it would be rather complex.
It has also decided against forcing providers to ‘simplify’ their product ranges and limit how many different accounts providers could offer. But the regulator felt that such prescriptive rules may stifle innovation and prevent savers from getting deals that match their needs.
One other potential remedy that the FCA has decided against is banning bonus rates. These artificially bump up the rate of interest you earn for a short period of time, typically 12 months, before the bonus ends and your interest rate plummets. The regulator believes that rather than banning them, it would be better if providers were simply forced to be clearer about just how the bonus rates work and when the bonus will come to an end. We think this is a much more sensible move, and have long argued that bonus rates are not as bad as they are often portrayed. Read 'Teaser' savings rates to be investigated.
What happens next?
The regulator wants to hear from the industry on its proposals by 18th February, before implementing any actual changes to the rules.
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