The Financial Conduct Authority is proposing a shake up of the £700 billion cash savings market after research showed that UK consumers are getting a raw deal from financial services firms.
In particular, the FCA found around £160bn of the funds held in easy access savings accounts earned an interest rate equal to or lower than the Bank of England base rate of 0.5% in 2013, yet consumers often find it difficult to know what rate they are on, or are put off switching by the expected inconvenience. 80% of easy access accounts have not been switched in the last three years.
Research by the FCA also found that simple changes in the timing and content of communications from firms to customers can significantly increase shopping around.
Christopher Woolard, director of strategy and competition at the FCA, says: “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 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 were found to have considerable advantages over other providers because they can attract most easy access balances despite offering lower interest rates.
In an effort to boost competition and provide a fairer outcome for customers, the watchdog is calling on banks to be more transparent about interest rate changes and to provide customers with timely information to help them compare their savings account with alternative products and know how to switch if they want to do so. This will also include measures to provide a way for consumers to view and manage accounts with different providers in one place.
The inquiry into the cash savings market comes alongside an investigation by the Competition & Markets Authority into personal current accounts aimed at increasing competition and account transparency and encouraging more consumers to switch.
Research released today by Consumer Intelligence shows 25% of customers believe that there is little point in switching current accounts because most accounts are the same. Two-thirds (67%) of bank customers say they are happy with their current bank and 47% of customers say they have never switched bank. Fifty-four percent of customers have been with the same bank for more than ten years, with 30% staying with the same bank for 20 years-plus.