LONDON (Reuters) – Britain’s financial watchdog said on Wednesday it was proposing a minimum interest rate for older cash savings accounts because the market was “taking advantage” of some longstanding customers.
FILE PHOTO – Smiling Union Jack piggy banks are lined up for sale in the window of a souvenir store on Oxford Street in central London January 20, 2014. REUTERS/Andrew Winning
The plan would cost banks an extra 300 million pounds ($395 million) a year in net interest payments, the Financial Conduct Authority estimated.
UK Finance, which represents banks that offer cash savings accounts, said its members would study the proposals and had already made changes to improve competition and help savers find good deals.
It is the first time the FCA has proposed a fixed interest rate on cash accounts, the “preferred policy option” after previous package of measures failed to have much impact.
Nearly 90 percent of British adults have a cash savings with banks and building societies, totaling 702 billion pounds in 2013, the watchdog said.
“The Financial Conduct Authority is concerned that 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 watchdog said in a statement.
It said this is unlikely to change without further intervention, but stopped short for now of an outright ban on price discrimination.
Instead it set out the option for a basic savings rate (BSR) that would apply to all easy access cash savings accounts after they have been open for a set period of time, such as a year.
Banks and building societies would be able to set the BSR freely – rather than the more draconian step of the FCA imposing a set rate – and the only restriction is that they cannot discriminate by account age.
“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,” said Peter Tyler, UK Finance’s director of conduct and savings policy.
The FCA’s board noted in March that the watchdog’s 2015 study and actions to improve how customers can open, manage and switch their cash accounts did not fully address problems uncovered at the time, and that more “remedies” were needed.
It set a December 2016 deadline for halving the target time for switching cash Individual Savings Accounts or ISAs to 7 days from 15 days.
Christopher Woolard, the FCA’s executive director of strategy and competition said on Wednesday that providers of savings products 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,” Woolard said.
The FCA is now seeking feedback on the options set out in its discussion paper, which closes on the 25 October 2018.
“The regulator is showing that it won’t hold back from taking more radical interventions where it feels this is necessary to ensure that consumers get a fair deal,” said Sarah Isted, financial services risk and regulation leader at consultants PwC.
Reporting by Huw Jones; Editing by Jason Neely and Andrew Heavens