Promoting consumer interests in the cash savings market

What impact will the Financial Conduct Authority’s (FCA’s) new report on the cash savings market have on lenders? Tim Dolan, partner in the financial markets department at King & Wood Mallesons and Helen McEwan, a trainee in the department, assess the report.

Original news

Savings providers should tell consumers about better interest rates, says FCA, LNB News 20/01/2015 157

Consumers should be able to get the information they need to compare cash savings accounts and then switch providers if they wish, the FCA has said following a market study. The study shows competition in the £700bn cash savings market often does not work well for consumers, particularly those with long-standing accounts. The FCA’s recommendations include asking providers to prominently display the lowest rate of interest any of their customers receives, and clearer information to help consumers compare their savings account with alternative products.

What is the background to the cash savings market study report?

The report, published on 20 January 2015, sets out the FCA’s final findings of its cash savings market study. It highlights aspects of the cash savings market that are not working effectively for retail consumers in the UK and proposes remedies to address those problems. The study focuses on interest-bearing cash savings accounts and covers seven main types of savings accounts:

• easy access accounts
• fixed term bonds
• cash Individual Savings Accounts (ISAs) with no term
• fixed term cash ISAs
• notice accounts
• children’s accounts
• regular savings accounts

What were the FCA’s main findings?

The FCA found that in 2013, around £160bn of easy access account savings earned an interest rate equal to or lower than the Bank of England base rate of 0.5%. The report highlights that it is extremely difficult for consumers to know whether or not they are getting a good deal on their existing savings account as they do not know what interest rates they are currently receiving.

The FCA also found around a third of balances in easy access accounts are held in accounts opened more than five years ago despite that fact those accounts earn lower interest than those opened more recently.

Furthermore, the FCA have identified that despite the abundance of cash saving products available, consumers receive little information about alternative products. Consumers are also put off switching providers by the expected hassle and low perceived gains from opening another account indicating that the cash savings market is not working as efficiently as it should.

What action does the FCA propose to take?

The FCA is proposing a range of remedies to address these concerns including:

• greater disclosure and transparency from banks to ensure consumers are aware of the interest rates they are receiving and the way in which banks reduce interest rates on variable rate savings accounts the longer the consumer holds the account
• providing consumers with clearer and more timely information to help them compare alternative products quickly and know how to switch products if they want to do so
• making the switching process as easy as possible and reducing the 15-day target for cash ISAs
• making it easier for banks to provide a way for consumers to view and manage accounts with different providers in one place thereby removing some of the advantages of the large providers

What will banks have to do to change their processes as a result of the review’s findings and what advice should banks be giving to their clients?

The FCA is asking for comments on its proposals by 18 February 2015. It will continue to engage with banks, consumer organisations and other stakeholders during the next phase of work to finalise and implement its remedies. It will then publish a statement on its decision on remedies and consult on any rule changes.

Until the FCA publishes its final decision, the rules around the regulation of cash savings products will not change. Therefore, we will have to wait until the FCA publish its final decision to know how banks need to change their processes and what advise they should give to their clients.

Interviewed by Anne Bruce.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.