The Financial Conduct Authority has set out a 14-point action plan to ensure banks and building societies are passing on interest rate rises to savers, as the consumer duty comes into effect.
The plan, published this morning (July 31), aims to ensure that banks are communicating with customers much more effectively and offering them better savings rate deals.
It follows a review of the cash savings market and a roundtable held with banks in early July.
The FCA found that while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts.
Between January 2022 and May 2023, nine of the biggest savings providers, on average, only passed through 28 per cent of the base rate rise to their easy access deposits.
Notice and fixed term deposits have seen greater pass through rate rises, with these nine firms passing through 51 per cent over the same period.
There has also been significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.
The City watchdog said firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value, according to the consumer duty which enters into force today.
If they are unable to do so, the FCA will take action.
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 – with firms 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.”
Action plan
As part of the action plan, 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
The FCA said it will review the timing of firms’ savings rate changes each time there is a base rate change and publish an analysis every six months of firms’ easy access savings rates, listing distribution from best to worst.
The FCA will also:
- 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
- Review firms’ performance on cash Isa to cash Isa switching
- Conduct further analysis into the contribution of cash savings to firms’ profitability
- 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
- 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 said it expects firms to 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.
Firms will be required to accelerate their fair value assessments for off-sale accounts ahead of the July 2024 consumer duty deadline for off-sale accounts.
The regulator said firms will need to closely monitor the effectiveness of customer communications, with larger firms providing the FCA with an evaluation by the end of 2023 and any follow up action they are taking.
They will need to 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 and consider how they can support their customers to access the free advice available from MoneyHelper.
The largest savings providers have also voluntarily committed to increase the efficiency of cash Isa to cash Isa switching, explore the potential of open banking and work with the FCA to develop a savings dashboard which gauges consumer activity in the savings market.
The FCA is continuing to monitor the market and will take further action if it doesn’t see significant progress by the end of 2023.
Harriett Baldwin MP, chair of the Treasury committee, said: “The committee has been pushing for progress on rates for savers all year and this action by the FCA represents more progress. Consumers should shop around for the best rates but loyal savers should not be penalised.
“If the £250bn in savings earning little interest can be made to work harder, it will help with the cost of living and help to tackle inflation.”
Last week, a Treasury committee heard Nikhil Rathi, chief executive officer of the FCA described the pace at which high street banks have acted on passing on increasing interest rates as "slow".
Rathi said the FCA has been raising this issue publicly since May last year but argued that the movement has been slow.
Earlier that week, Barclays, HSBC, Lloyds Banking Group, NatWest Group and the FCA outlined to MPs what work they were doing to improve savings rates for consumers.
Meanwhile, earlier this month, the Treasury committee asked the chief executives of the UK’s largest banks if all their savings products provide ‘fair value’ to customers, whether customer inertia is being exploited and what steps they’re taking to notify their customers of higher rates available.
sonia.rach@ft.com
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