Is this the end of the zombie savings account?

24 July 2015, 14:48   By Samantha Smith

SAVERS must be told clearly when the interest rate of one of their accounts is about to change - by text, for example - the Financial Conduct Authority (FCA) say.

zombie time limit
Credit: Cako/

That's just one of the measures they're proposing to help prevent people's money languishing in so-called "zombie accounts", where they earn practically no interest.

The FCA also want to see an end to account names that suggest savers will get great returns, even if they may have been accurate when the accounts were first launched.

In addition, people with cash ISAs should be able to switch to a new ISA within seven days, with only a few exceptions, by the end of 2017.

Newer, faster, better

The FCA's proposals follow on from a report they published in January this year, in which they found that millions of people were losing out because of pitiful interest rates, particularly if they'd had an account for some time.

The watchdog found that just over half of the UK's £700 billion in savings was kept in easy access accounts, which tend to have much lower returns, and that a third of those accounts were more than five years old.

More on saving
How to get better returns - here
When current accounts perform better - here
The appeal of Sharia-compliant savings accounts - here

That means any bonus rates for opening the account are long over - and yet the FCA found that people thought it was too complicated to switch to a better account.

So they want to see quicker and easier switching brought in, especially when moving from one of a company's legacy accounts - those no longer offered to new customers - to a newer, better performing account.

The FCA say that providers should already have all the identity information they need for existing customers, so moving to a new account should be a matter of "just one or two clicks".

They also want to people to be able to transfers their cash ISAs to new providers within seven working days rather than the current 15, using the electronic transfer system.

Only the smallest ISA providers, for whom this system is too expensive to set up, would be exempt from this plan.

Tell me more, tell me more

The FCA say being able to move account more quickly will help increase competition - but while smaller providers might not be able to offer the speed of switching and service their bigger rivals can, they're already pretty competitive in comparison.

The FCA's previous report pointed out that many of these smaller providers offered better returns - especially when compared to high street institutions.

The giants know they don't need to work so hard to get and keep our custom - they are, after all, right there in front of large numbers of us - but they also don't want to.

One of the ideas the FCA has put forward is that the summary box explaining the key features of an account should be made clearer:

  • The interest rate should be prominent; customers shouldn't be told to go elsewhere to find it
  • Bonus and underlying rates should be made clearer, as should the period they'll apply
  • Providers should explain clearly when and why they can change rates on variable rate products
  • What happens when a fixed term account reaches maturity
  • Better information about closing or switching accounts, and any associated charges

The FCA also want to see current interest rates for all a provider's products displayed prominently, including those being offered by their legacy accounts.

And they want to bring in a "switching box" on the provider's communications with their customers, explaining the possible benefits of shopping around.

This would work a little like those advisory boxes found on energy bills, telling us the tariff we're on and whether the provider offers a better deal - but more so, because the FCA want to see information about rival providers included.

Unsurprisingly, the providers want to see the switching box limited to showing off their own products, but the FCA are adamant that people should have enough information to prompt them to think about whether they could do better.

What's in a name?

They're also insisting that accounts not be given names that suggest great returns - although providers and trade bodies say that could be difficult to implement.

After all, an account may be incredibly attractive when it launches - but a few years down the line it might be eclipsed by other products, or the interest rate will have been decreased.

Despite there being no consensus as yet on when a name becomes misleading, the FCA are standing their ground.

If competition or Bank of England base rates improve, a "gold saver" account might start to look decidedly bronze, for example.

But the FCA say that the switching box and other post-sale information should provide "sufficient information to warn a consumer" when their once fabulous account starts to look a little dull by comparison.

If that doesn't work, they're also threatening to name and shame the providers who pay poor interest to longstanding customers.

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