This week the city regulator, The Financial Conduct Authority, announced plans to open a discussion on whether it should intervene with providers and force them to offer a basic savings rate (BSR) that all customers, regardless of how long they have been with the provider, will get. This rate will be the minimum rate savers will receive, even after introductory periods.
This is following the FCA’s review of the market, the Cash Market Study, which started in 2013 and concluded in 2015 with a range of initiatives to try and boost competition in the savings market and ultimately get savers switching. It was felt, at the time, that the savings market wasn’t working well and that more needed to be done to increase competition.
With the majority of savers holding money with a current account provider, it means that the high street banks hold most of this cash.
Some £724bn is held in easy access accounts, that’s 81% of the cash held in the savings market overall. That’s a huge figure. And if we assume that most of this is with the high street, paying next to nothing, the banks are literally laughing all the way to the bank!
Sadly, the initial initiatives following the study have failed to have the desired effect, so this new suggestion might at least help to boost the interest for those savers sitting in older, low-paying accounts. The FCA highlighted that the older the account was, the lower the interest rate is likely to be.
The issue of course is that the high street banks pay rubbish rates for both new and existing account holders. They don’t need to pay good rates, as it seems that many people are happy to leave money with them anyway.
That said, we truly welcome any initiatives to improve savers’ interest and certainly any measures to reduce bad practices from the savings providers.
For years now providers have slashed rates on savings accounts with little regard for the saver in mind. With some easy access savings accounts on the high street paying as low as 0.05%, it’s a truly shocking state.
In principle, introducing a BSR will indeed help those savers with money sat in accounts paying next to nothing. However, with the providers setting the bar on what this rate will be, this could actually lead to a lowest common denominator – will the providers play fair when they are given a free rein?
The concern that the FCA also has is that the improved rates on a provider’s back-book (older accounts that are no longer available to open) may impact a firm’s ability to pay higher introductory interest rates. However, this seems less of an issue when looking at the high street banks, as they rarely offer compelling or competitive rates on their accounts available to open, let alone their back-book, so this move could at least help to boost the rates on offer for the majority of savers.
That said, more needs to be done and the fear is that with the introduction of a BSR savers may be even less compelled to switch accounts – which means that the high street may actually retain even more money.
Switching accounts from one provider to another to improve rates has to be simplified and ideally standardised.
It’s not just the perceived hassle in doing so, many providers don’t make it easy with different applications and processes that are putting savers off.
That and, of course, better rates would be good. Who remembers 3%, 4% or even 7% fixed rate savings bonds?
Bring in even more competition to the high street, get savers switching and we might just see a real boost in the rates on offer. Ok maybe 7% is wishful thinking!
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