In a consultation paper published today (January 9), the regulator said it was looking to incentivise banks and other savings account providers to increase the interest rates they offer on easy access savings accounts to improve competition in the market and get better outcomes for consumers.
The FCA wants to protect savers who are currently receiving the lowest interest rates, with these individuals typically being longstanding account holders, while also maintaining competition in the market for new clients.
To do this, the regulator has proposed that banks introduce single easy access rates (Sears) and publish data on these rates to make it easier for individuals to compare rates across the market.
Under the new rules, banks will be able to offer multiple introductory rates for up to 12 months, but will then need to choose a single rate for their easy access cash savings accounts and Isas.
Banks must publish data on their Sears every six months, making it easier for consumers to compare rates when opening an account.
Longstanding customers should also find it easier to see whether their existing product is giving them the best interest rate because their provider will have only one rate rather than many rates changing over time.
The FCA expects that to retain customers coming off introductory offers banks will set their rates higher than they currently do.
According to the FCA, the proposals are expected to generate an extra £260m for consumers due to higher interest rates.
Christopher Woolard, executive director of strategy & competition at the FCA, said: “Competition is not working well for many of the 40m consumers with easy access savings accounts and we want that to change.
“Our proposals would mean firms have a single rate for customers immediately after their accounts have been open for 12 months. Firms will choose the rates they offer, and the rates they offer will have to be clearly published.
"This will prevent firms from gradually reducing interest rates over time and make them compete for all their customers.”
Laura Suter, personal finance analyst at investment platform AJ Bell, said that these proposals will make the cash savings market more transparent as savers will be able to clearly see if they are being offered the best interest rate.
Ms Suter said: “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."
But she said the proposals would not stop people from having to “shop around” to get the best deal, with many longstanding customers unlikely to switch.
Ms Suter said: “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.”
She added: “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.”
The FCA's consultation closes on April 9, 2020.
amy.austin@ft.com
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