Consumers who take out savings accounts with short-term high interest rates often do not transfer their money when the rate falls. Whilst there may be good reasons not to switch, the lack of action by consumers could be caused in part by behavioural biases such as limited attention and present bias.
Using a randomised controlled trial we investigated the effects of different reminder letters on switching behaviour among over 20,000 savings account customers around the time of an interest rate decrease.
Overall, our results show that reminders made a notable difference. The fact of getting a reminder was more important than its precise phrasing and increased switching by between 5.6 – 7.9 percentage points 20 weeks after the rate decrease. The timing of reminder had an effect on the type of switching: those who received a reminder before the rate decrease were more likely to switch to another firm or product, or withdraw money than those who did not receive a reminder, whereas those who received a reminder after the rate decrease were more likely to switch to a comparable account with a higher rate at the same firm.
This research indicates that improved disclosure can encourage consumers to act when it is beneficial to do so.
Paul Adams, Stefan Hunt, Laura Vale and Redis Zaliauskas
The authors work in the Chief Economist’s Department of the Financial Conduct Authority.
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