Easy access savings reforms proposed by FCA

The Financial Conduct Authority (FCA) estimates customers would benefit from higher interest payments of up to £260m if the reforms were implemented.

Banks and building societies would have to provide two permanent interest rates for savers, although they would still be able to offer introductory rates for 12 months.

The consultation for these proposals is now open and will close in April 2020.

Credit: Piotr Swat/Shutterstock.com

Rewarding savers

Under the FCA proposals, banks and building societies would have to set up a single easy access rate (SEAR), with one for their easy access savings and one for their easy access cash ISAs.

Firms would still be able to offer multiple introductory rates for 12 months after a customer joins, but this would then become a SEAR after that introductory period was up.

The FCA anticipate this will help longstanding savers who often see the interest rates on their savings accounts gradually decrease as banks offer better rates to new customers.

Instead, firms would need to compete with their SEAR or risk savers leaving once introductory rates have expired.

Transparency

If the reforms go ahead, customers would be able to easily compare the SEARs offered by different savings accounts as data would be published every six months.

This would benefit customers searching for an easy access savings account with a good rate after the introductory period while also reassuring longstanding savers with a firm that they're receiving adequate interest in comparison with the rest of the market.

There are around 40 million customers across the UK using easy access savings accounts which are more flexible for savers than fixed savings accounts.

When the FCA examined the savings market, they found harm to customers within easy access savings but that no action was currently required on fixed saving accounts.

While they estimate customers would benefit from £260m in extra interest payments, they also suggest it would cost £94m to firms as a one-off cost and incur annual costs of £35m.

Once the consultation has closed in April, the responses will be analysed and the FCA aim to publish the next steps in the second half of 2020.

Focus on fairness

Fairness for existing and vulnerable customers has been at the heart of reforms across various industries in recent months following the submission of a super-complaint made to the Competition and Markets Authority (CMA) by Citizens Advice in September 2018.

The CMA subsequently investigated and found that customers were estimated to have lost £3.9bn due to their loyalty to companies.

Since then, regulators across various sectors have been working to make their industries fairer for loyal customers.

For example, Ofcom have introduced rules to ensure broadband, phone and TV customers are informed when their contracts are coming to an end from February 2020.

Elsewhere in the finance industry, the FCA has taken aim at home and motor insurance after finding around 6 million policyholders were paying higher premiums than they should be, costing customers up to £1.2bn more annually.

However, the possibility of unintended consequences from proposals designed to create fairness is always an inherent risk.

For instance, fairer overdraft pricing is set to come into force from April 2020 which is designed to help customers make informed choices about this type of debt. Yet it has led to banks hiking the rates of their overdrafts in response to the changes.

Unintended consequences in relation to the FCA's easy access savings reforms could potentially be found in the industry's decision to keep rates low and focus on attracting new customers, although the FCA says they have designed the proposals to avoid unintended consequences.