The FCA has reviewed the cash savings market and chaired a roundtable with banks in early July. And now it is threatening to hold to account any bank or building society not passing on interest rate rises to savers.
The FCA found that while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts. Nine of the biggest savings providers, on average, only passed through 28% of the base rate rise to their easy access deposits between January 2022 to May 2023. Notice and fixed term deposits have seen greater pass through of rate rises. Specifically, these 9 firms passed through 51% over the same period. There has also been significant variance between firm. Smaller firms are noted to offer higher interest rates on average than their larger competitors.
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Consumer Duty regs come into force today
Firms offering the lowest rates will have to justify by the end of August how those rates offer fair value. This is according to the Consumer Duty which enters into force today. If they are unable to do so, the FCA will take action. Firms will also need to step up their communications with their customers about their options and measure the effectiveness of their communications campaigns. Together with the Information Commissioner’s Office, the FCA recently clarified how savings providers could inform their customers about the best available rates, even where they had opted out of marketing.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates. We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case. Firms will be required to prove to us that they are offering their customers fair value.
“We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available.”
FCA action plan
1. Require firms offering the lowest rates to provide their fair value assessments under the Consumer Duty by 31 August 2023 and take robust action by the end of 2023 against those who cannot demonstrate fair value.
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By GlobalData2. Review the timing of firms’ savings rate changes each time there is a base rate change.
3. Publish an analysis every 6 months of firms’ easy access savings rates, listing distribution from best to worst.
4. Analyse the difference between on-sale and off-sale products, challenging firms to explain how large differences offer fair value and considering further action if this gap does not continue to close.
5. Review firms’ performance on cash ISA to cash ISA switching.
6. Conduct further analysis into the contribution of cash savings to firms’ profitability.
7. Review the effectiveness of firms’ engagement with customers by the end of March 2024 and take action if firms have not effectively delivered the outcomes the FCA has set out.
8. Work with others, including the Money and Pensions Service, to identify what more can be done to support consumers to save regularly, strengthening their financial resilience.
The FCA expects firms to:
9. From today, use their fair value assessments of on-sale savings products to assure themselves and the FCA, where needed, that these represent fair value for customers.
10. Accelerate their fair value assessments for off-sale accounts ahead of the July 2024 Consumer Duty deadline for off-sale accounts.
11. Take action to prompt their customers in lower paying savings accounts or non-interest bearing accounts to consider alternatives.
12. Closely monitor the effectiveness of customer communications, with larger firms providing the FCA with an evaluation by end 2023 and any follow up action they are taking.
13. Support consumer financial resilience by encouraging customers to start saving and/or search for higher rates, with the largest firms committing to support a targeted firm-by-firm communications campaign.
14. Consider how they can support their customers to access the free advice available from MoneyHelper.
The FCA is continuing to monitor the market. It says that it will take further action if it doesn’t see significant progress by the end of 2023.
