Basic savings rate could be imposed on cash accounts, City regulator suggests

A basic minimum savings rate could be imposed on easy access cash savings accounts to help combat “price discrimination” faced by savers who stay loyal to their provider, the City regulator has suggested.

The Financial Conduct Authority (FCA) wants to tackle the issue of significant amounts of easy access cash savings sitting in accounts opened a long time ago, earning lower interest rates than those opened more recently.

It is suggesting the option of a basic savings rate (BSR) – which it calculates could result in up to £480 million more per year going to savers.

A BSR would require savings providers to have a single interest rate on to which a cash savings account reverts after a certain period of time, such as a year, enabling more uniform pricing across cash savings accounts.

Under the BSR, firms would pay a slightly higher overall average interest rate to their customers, adding up to an estimated net increase of between £150 million and £480 million ​​​​per year for the market total, the regulator said.

The FCA is concerned the interest rates that longstanding customers receive on easy access cash savings products are generally lower than those received by customers who shop around.

The regulator wants feedback on “how to address the harm caused by this price discrimination”.

It suggested a BSR could apply to all easy access cash savings accounts and easy access cash Isas after they have been open for a set period of time.

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.”

Nearly nine in 10 (87%) UK adults have cash savings.

Rachel Springall, a finance expert at, said the average easy access savings rate is currently 0.52% – with some banks paying 0.05%, 0.1% and 0.2%. Looking at better deals, she highlighted an account from Coventry Building Society paying 1.4%, as well as accounts from challenger brands Tesco Bank and Virgin Money.

She said: “It is worth keeping in mind that if banks or building societies are pressured to raise their savings rates, then they may have to change their propositions elsewhere, such as add or increase fees to their current accounts or change eligibility criteria to sustain paying out more interest to savers, or even withdraw their account entirely.

“We have already seen many accounts on the market that limit the number of withdrawals made per year and will cut the interest rate down as a penalty, such as limited access savers.”

Previous FCA research has found that as of end of December 2013, a third (33%) of balances in easy access products were in accounts more than five years old, while 46% of balances were in accounts more than two years old.

At the same time, interest rates were on average 0.82 percentage points higher in accounts opened within the previous two years than accounts opened more than five years earlier.

This gap was 0.87 percentage points for cash Isas.

In 2015, an FCA study into the cash savings market found competition was not working well, particularly for customers who remain with the same provider for a long time.

It found major current account providers are able to attract people’s savings despite offering lower rates, and there is a lack of product transparency.

Previous efforts to tackle the issue have not stimulated sufficient changes in customer behaviour to address the harm to longstanding customers, the FCA said.

Feedback on the FCA’s discussion paper should be received by October 25.

Peter Tyler, director of conduct and savings policy at trade association UK Finance, 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.”


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