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.
As part of its research into this area, the FCA found providers take advantage of inertia in the cash savings market by having significant amounts of consumers' savings in accounts opened more than five years ago which typically pay lower interest rates than those opened more recently.
For example, in easy access products accounts opened up to two years ago can pay more than 1 per cent interest while those opened more than five years ago can pay around 0.25 per cent.
In 2015, after its cash savings market study, the FCA introduced a number of measures, including a summary box and more prominent display of interest rate information, but it has acknowledged that more action is needed.
Christopher Woolard, executive director of strategy and competition at the FCA, said: "Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.
"While many customers have valid reasons for not shopping around, providers must still treat them fairly, while maintaining competitive rates for those who do.
"Efforts to encourage customers to switch have had limited impact and we remain concerned about the way firms are treating customers. This is why we are considering the introduction of a basic savings rate for older accounts, which would promote competition and help get customers a better rate of interest."
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.
On top of this the FCA found providers often confuse consumers with the large number of products they introduce and withdraw from sale and it 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 current account provider.
The FCA's modelling of a basic savings rate found it would deliver benefits in the form of higher net interest payments to customers ranging between £150m and £480m a year in the easy access cash savings market.
It has 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.
The FCA said it considered implementing a ban on price discrimination, which would require firms to offer single interest rates for all easy access cash savings accounts and easy access cash Isas, irrespective of the length of time the account has been open.
But it came to the conclusion this would significantly decrease flexibility and reduce providers' ability to alter their pricing strategies and would probably lead to interest rates going down for front-book savers.
A ratio rule, building a relationship between the amounts paid to front-book and back-book savers, was also dismissed because it would be too complicated and wouldn't improve price transparency.
Susan Hannums, co-founder of independent savings advice site Savings Champion, said any incentives to improve savers’ interest and certainly any measures to reduce bad practices from the savings providers should be welcomed.
She said: "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 per cent, it is a truly shocking state.
"With around 80 per cent of the savings market currently sitting in easy access accounts and the majority of that likely to be still held with a current account provider, it is clear that most of this money is sat languishing with the high street. The idea of the Basic Savings Rate (BSR) will indeed help those savers with money sat in accounts paying next to nothing.
"However, with the providers setting the bar this could actually lead to a lowest common denominator – will the providers play fair when they are given a free rein?"
damian.fantato@ft.com
