The regulator this morning (25 July) spoke of plans to introduce a mandatory single, basic savings rate for all longstanding customers with cash savings.
The plans were included in a discussion paper on price discrimination in the cash savings market and as such are a representation of the regulator's thinking, not concrete plans.
The FCA said it has been compelled to take action because of the "limited impact" of its previous efforts to encourage switching.
The regulator found large personal current account providers had a considerable competitive advantage, with more than 66 per cent of consumers keeping their cash savings with their main provider.
Following this morning's paper, Lloyd Banking Group saw its share price fall by 0.8 per cent, while Royal Bank of Scotland saw its share price go down by 1.08 per cent and Barclays saw a fall of 0.7 per cent.
Meanwhile, HSBC saw its share price drop by 0.9 per cent.
As part of the proposal, published in a 43-page discussion paper today (25 July), the FCA would force each provider to offer a single interest rate, which they would be able to set themselves, to their mid-book and back-book cash savings accounts.
The FCA said this would work by pooling mid-book cash savers, who are more likely to switch, with back-book savers, who are much less likely to do so, with the same rate.
The presence of more active customers in the pool would place pressure on providers to set a higher basic savings rate for their less active customers than they currently do.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, welcomed the news but said the basic savings rate on its own would not be enough to address the problem.
She said: "This would be good news for people who don’t get round to switching, because the basic savings rate would improve their rate. However, only by a smidgen.
"According to the calculations in this paper, it would boost it by less than 0.1 per cent, so it’s not going to remove the need for savers to shop around to get a decent rate."
She also warned the change would come at a cost, which would be paid by more active rate chasers.
She said: "The FCA expects banks to cut the introductory rates in order to pay for higher rates for those who hold accounts for longer periods. This will make switching even more important for those who want the best rates."
Ms Coles said challenger banks would probably be able to offer higher introductory rates if the basic savings rate came to light, since they do not have the huge back books of savers which the larger banks have.
The FCA's research found 87 per cent of adults in the UK had cash savings, with 45 per cent of customers holding their account for more than five years.
It has been proposed that a basic savings rate would kick in 12 months after the account was opened and that it would only apply to easy access savings accounts and Isas where the problem of price discrimination is worse.
Peter Tyler, director of conduct and savings policy at banking trade association UK Finance, said the industry would explore the options set out in the FCA paper but added remedies to encourage switching had already been introduced.
He said: "The industry has implemented a number of remedies to improve competition in the cash savings market, helping savers to shop around and find the best deal.
"These include communicating more clearly with customers about the rates they receive, faster cash ISA transfers and enhanced customer prompts before a rate is reduced.
“UK Finance and its members will be exploring the options set out in the FCA’s discussion paper and look forward to responding in due course to help ensure that any additional remedies work well for consumers."
damian.fantato@ft.com
