FCA acts to help customers get better rates for cash savings

The Financial Conduct Authority (FCA) is today proposing to reform the easy access cash savings market. Under new rules all firms will have to set a single easy access rate (SEAR) across all easy access accounts. Firms will have flexibility to offer multiple introductory rates for up to 12 months, then they will need to choose one SEAR for their easy access cash savings accounts, and one for their easy access cash savings ISAs.

The FCA has previously raised concerns that competition is not working well for many of the 40 million consumers who hold either an easy access savings account or easy access cash ISA. Many longstanding customers currently receive poor outcomes and the FCA wants firms to focus more on these savers. The FCA’s proposals aim to improve competition in the market, encouraging firms to increase the interest rates they offer as well as protecting those consumers that currently receive the lowest interest rates. The FCA estimates that consumers will benefit by £260m from higher interest payments.

Christopher Woolard, Executive Director of Strategy & Competition at the FCA said:

‘Competition is not working well for many of the 40 million consumers with easy access savings accounts and we want that to change. Our proposals would mean firms have a single rate for customers immediately after their accounts have been open for 12 months. Firms will choose the rates they offer, and the rates they offer will have to be clearly published.

‘This will prevent firms from gradually reducing interest rates over time and make them compete for all their customers. We are concerned that many longstanding customers are seeing a poor outcome and we want firms to focus more on these customers. The new rate will also make it easier for savers to know whether they are getting a good deal after any introductory offer has expired.’

The FCA expects that longstanding customers will benefit from higher interest rates because firms will compete on the SEAR. The SEAR works by requiring firms to pay the same rate to longstanding customers as to customers who have recently come off an introductory offer and are deciding whether to switch or stay with their current product. To retain customers coming off introductory offers, it is expected that firms will set their SEARs higher than the current rates offered to longstanding customers.

The proposals will also require firms to publish data every 6 months on the SEARs they offer. This will make them easier to compare at the time of opening their account, with the rates that other firms are currently offering. Longstanding customers would also find it easier to see whether their existing product gives them a good interest rate because their provider will have only one such rate rather than many such rates changing over time. The proposals are limited to easy access savings accounts because this is where the FCA found harm in the cash savings market study.

The FCA is now seeking feedback on the proposals set out in this Consultation Paper, by 9 April 2020.

Notes to editors

  1. Consultation Paper

  2. Discussion Paper

  3. Cash Savings Market Study

  4. The cash savings market was one of the markets identified by Citizens Advice in its super complaint to the Competition and Markets Authority (CMA) on the loyalty penalty. The FCA has today published an update on its broader work related to the super complaint.

  5. Video: Our proposals to help customers get better rates for cash savings

  6. Find out more information about the FCA.