You are here: Home - News -

Regulator proposes minimum savings rate

by:
  • 25/07/2018
  • 0
Regulator proposes minimum savings rate
Banks may soon have to offer a minimum savings rate to ensure longstanding customers get a fair deal, the city regulator has said.

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.

 

Banks taking advantage

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.

 

Shopping around

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.

There are 0 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.

Profiles

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Marketwatch

Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.

Poll

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
Read previous post:
HSBC Canary Wharf building
Exclusive: Michelle Andrews confirmed as HSBC mortgages and savings boss

HSBC appointed Michelle Andrews its head of mortgages and savings at the beginning of June.

Close