20th January 2015
Millions of savers are getting a poor deal from their bank, a study by the City watchdog has found.
The Financial Conduct Authority (FCA) said that competition in the £700bn savings market often does not work well for consumers, particularly for loyal customers with long-standing accounts.
It said that it should be easier for customers to compare cash savings accounts and to switch providers.
The FCA noted that in 2013, around £160bn of savers cash was held in easy access accounts earning equal to or less than the Bank of England base rate of 0.5%.
It said that customers often find it difficult to know what rate they are on or are deterred from switching because of the expected inconvenience.
The FCA found that 80% of easy access accounts have not been switched in the past three years.
The findings suggest that simple changes in the timing and content of communications from firms to customers could significantly increase shopping around.
Christopher Woolard, director of strategy and competition at the FCA, said: “In a good market firms should be competing to offer the best possible deal and consumers should have the information they need to help them shop around. We want to see firms making simple information much easier to find. More also needs to be done to reduce the hassle for consumers to switch their savings. The steps we have proposed today are designed to make the market more dynamic, working in everyone’s interest.”
Richard Lloyd, executive director of Which?, said: “For too long, banks and building societies have left customers trapped in savings accounts paying woefully low interest rates and losing out on billions.
“More than 50,000 people supported our campaign to get people a better deal on their savings and we now expect to see the industry working with the regulator to make these recommendations a reality as soon as possible. The banks must quickly start playing fair and help consumers get a good deal.”
Previous research by the consumer group found that customers are losing out on £4.3 billion a year by leaving savings in poor value accounts.
A study by Which? also revealed that three-quarters of people don’t think banks do enough to help savers get a good deal, fewer than one in five savers know what their interest rate is and aquarter of those with a bonus rate don’t know when it will end.
The FCA found balances held in older accounts, which represent a significant proportion of providers’ total savings balances, earn lower interest rates than those in more recently opened accounts.
Consumers receive little information about alternative products and often assume switching accounts will take a lot of effort for limited benefit.
Large personal current account providers have considerable advantages over other providers because they can attract most easy access balances despite offering lower interest rates.
Anna Bowes, Director at Savingschampion.co.uk says “The FCA savings study findings are a breath of fresh air and fully support the reason that we set up Savings Champion.co.uk and in particular our Rate Tracker service, over three years ago. We recognised that communication, transparency and access to clear, whole of market information has been missing in the savings market.
“We hope that the proposed changes within the report will improve competition in the savings market, something that has been desperately lacking in recent years.
“Any savers who believe that there is little to be gained by switching in the current low interest rate environment need to be aware that they could still make hundreds, if not thousands of extra interest by moving. Switching is a vital part of getting better rates for savers. More savers switching accounts will lead to greater competition in the market. Savers need to play their part to improve their situation and the proposed changes should encourage more of us to do so.”
The FCA is proposing a number of changes to the cash savings market to address these concerns. These include:
The FCA does not intend to mandate the specific number or type of products that each provider should offer. However, the FCA does note a number of providers have recently simplified their product ranges. Providers that have not yet reviewed their product range should consider whether their current products deliver good outcomes to consumers.