Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the FCA’s plans to change the cash savings market:
“The plans from the regulator would be a dramatic change to the cash savings market and will mean banks can’t hide behind a vast array of different interest rates for cash accounts, depending on how long ago you opened the account, whether it’s run online or in branch and what branding the account has been given.
“It will be much simpler for customers to find the rate they are being paid, and to then compare that figure to what they could get elsewhere. It also means customers of the same bank with multiple accounts won’t find they are being paid a range of different interest rates.
“Banks will also no longer be able to quietly ratchet down interest rates they pay on cash savings over time, in the hope that customers won’t notice. This means that the most vulnerable customers, who aren’t as likely to shop around, should get a better deal. Hopefully the ‘cliff-edge’ effect of the interest rate reducing after the initial 12-month offer period will spur more people into action to switch to a better rate.
“However, the move will still mean that to get the best rates you need to shop around. It’s estimated that cash account customers miss out on £1.1bn in interest* by not switching to a better rate, and this fix from the FCA doesn’t solve that.
“It’s likely we’ll see banks competing on introductory rates to draw new customers in – as they do now –and then setting the ‘single easy-access rate’ at the minimum they can get away with before they see an exodus of customers. This is unlikely to mean those that have had accounts for five years or more, and so are least likely to switch, will see a dramatic increase in the money they make on their savings.
“The new rules will likely benefit the digital-only providers or newer banks, as they don’t have a massive back-book of legacy business. The traditional high-street banks will have vast numbers of customers sitting in accounts that haven’t been switched in years, meaning a small increase in their single easy-access rate will represent a much bigger cost to their bottom line. In comparison, newcomer and challenger banks will have fewer long-standing customers with smaller sums saved in the accounts, meaning the impact of any increase in the rate will be smaller.”
*Based on calculations by the Citizens Advice Bureau: https://www.citizensadvice.org.uk/Global/CitizensAdvice/Consumer%20publications/Super-complaint%20-%20Excessive%20prices%20for%20disengaged%20consumers%20(1).pdf
