FCA looks to tackle price discrimination against long-term cash account holders
5 August 2018
Easy access cash savings accounts could have a basic savings rate imposed to help tackle the price discrimination faced by longstanding customers, the FCA has suggested.
In its discussion paper on price discrimination in the savings market, the regulator expressed concern that interest rates for customers who stay loyal to their provider are lower than those who shop around.
It suggested that the basic savings rate apply to all easy access cash savings accounts and easy access cash ISAs after they have been open for a set period of time, such as a year.
Christopher Woolard, executive director of strategy and competition at the FCA, said that providers are taking advantage of the high level of customer inaction to pay lower interest rates to longstanding customers.
Woolard said: “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.”
As many as 87% of UK adults hold cash savings and a FCA report in 2015 found that competition in the market was not working well. It also highlighted a lack of product transparency and noted that large, well-established personal current account providers were able to attract most savings balances despite offering lower rates. While a number of changes came into force in 2016, the FCA admitted that there has not been enough changes in customer behaviour to address the harm to longstanding customers.
Giles Hutson, chief executive, Insignis Cash Solutions, said the FCA’s proposal was a positive move for the savings market and it welcomed “any and all measures” that help savers.
“While important new dynamics have increased competition and therefore savings rates, having a ‘base rate’ for savings would create a useful benchmark. Average rates for savers have been below inflationary figures for some time now and we welcome this initiative to mitigate the current environment. Ultimately, those who actively manage their cash across institutions and maturities will most materially improve their returns,” he said.
Peter Tyler, director of conduct and savings policy at UK Finance, commented: “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.”
The FCA has given respondents until 25 October 2018 to offer their feedback.
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