The Financial Conduct Authority (FCA) has set out proposals that it says will reform the easy access cash savings market – especially for loyal savers.
The regulator says that while many savings providers compete for new business, there is less pressure for them to do so on older and closed accounts, as savers’ inertia and lack of awareness of what rate they are actually earning, means that they tend not to switch.
The new rules would see banks and building societies having to offer a Single Easy Access Rate (SEAR) – a rate that will be paid across all easy access accounts after 12 months. The banks will also be required to pay a SEAR across their easy access cash ISAs.
They will still be allowed to have multiple introductory rates for new customers - but after 12 months all customers will be moved to the SEAR, which the banks can set themselves but will have to be clearly publicised.
The FCA hopes that this move would increase the rates that loyal savers receive, as they would expect providers to compete on the SEARs to avoid losing their customers after 12 months.
According to the FCA, 40 million people in the UK hold an easy access account and/or easy access cash ISA. And Bank of England figures show that there is currently £766 billion in held in easy access savings accounts – and this doesn’t include the amount in easy access cash ISAs.
While there are savers who regularly review and switch their savings, there are many many more who don’t - and as a result are sitting in old forgotten accounts, often earning peanuts. Many of these savers will not even realise just how little they are earning, as there are so many closed easy access accounts and so it can be difficult to know just which one they have money in and therefore the interest that they are earning.
The problem is that the big banks who dominate the savings market are already paying rock-bottom prices on their live accounts, but people still put their cash with them. So, the concern is that these providers won’t worry about competing to retain their customers because they know they simply won’t switch - however badly they are treated. As a result, their SEAR is likely to still be very low – offering loyal savers very little uplift, if any.
That said, at the very least having one rate for older accounts will make it easier for savers to identify what they are earning. But it’s then up to them to move if they are unhappy with the interest they are being paid by their provider.
In order to encourage them to move, as well as knowing the SEAR that they will be earning with their current provider, they will need to understand what they could be earning elsewhere and that’s the challenge. People assume their bank is paying them the best they can get – they simply don’t realise how much more they could earn if they were to move.
The bottom line is that if the SEAR could help savers earn more interest, especially with the high street banks, whilst preserving the good competitive rates for more active savers, then that has got to be a good thing – but it will be up to the customers to prove that if they are not treated fairly, they will leave. If they don’t, banks will simply go back to their old ways.
SEAR or no SEAR, the only real way to make sure the interest you are earning on your savings is competitive and meaningful, is to regularly review your savings accounts and switch to the best-paying accounts you can find. Sign up for our free Rate Tracker and check out our Best Buy tables to see how much more interest you could be earning.
Listen to Anna Bowes explaining what this announcement from the FCA might mean for savers in an interview with Dan from Shares Magazine and AJ Bell below.