New rules for savers will help give more than 40million people better returns on their money by boosting competition in the easy access market.
Regulator the Financial Conduct Authority (FCA) has today proposed a series of changes on cash savings to ensure customers are getting the most for their money.
Under new guidelines, all firms will have to set a ‘single easy access rate’ across all of their easy access accounts.
Firms will have flexibility to offer multiple introductory rates for up to 12 months, however after this point, they will need to choose one rate 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 40million consumers who hold either an easy access savings account or easy access cash ISA.
It said many long-standing customers currently receive poor returns on their cash – because interest rates plummet after the ‘introductory period’.
Overall, payouts have dropped to their lowest point since 2018. The average gross return on an easy-access account today is 0.59% – down from 0.64% a year ago. This is the lowest since September 2018 when it was 0.58%, based on a deposit of £10,000.
By introducing a single rate, it said competition will improve, as banks and building societies will have to work harder to keep your custom after the introductory period.
The FCA estimates that consumers stand to gain £260million from higher interest payments.
“It’s good to see the regulator trying to simplify the easy access cash savings market but it’s too early to know if this will have a positive outcome for UK savers,” money expert Andrew Hagger explains.
“There has been little appetite for savings balances from the main banks and building societies in recent years, and it’s unlikely that they will want to pay more overall to attract cash balances and take a hit on their profit margins.
“Longstanding customers may see a slight improvement in rates, but the cost implication of this move could mean lower rates for new customers.”
The FCA states that consumers will benefit by £260 million from higher interest payments – with the reported 40 million consumers holding an easy access account, that’s an average of £6.50 each.
How a single easy access rate will work
The single easy access rate will work by requiring firms to pay the same rate to long-standing customers as to those 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 hoped that firms will set their rates higher than the current rates offered to loyal customers.
The proposals will also require firms to publish data every six months on the single rates they offer.
This will make it easier for the customer to see the best rates at the time of opening their account – as well as make it simpler for them to compare their current deal with the rest of the market.
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.”
Martin Lewis: “It won’t mean people automatically earn more”
While a new single rate could help boost competition, experts at Moneyfacts say customers who simply sit tight will still lose out.
“Away from the challenger brands, even if high street banks were to introduce a single easy access rate, savers could still be better off switching elsewhere due to the gap between the interest offered, as providers can decide on their own rate,” Springall, at Moneyfacts explains.
For example, based on a £10,000 deposit, Gatehouse Bank pays an expected profit rate of 1.40% on its Easy Access Account, but HSBC pays just 0.10% on its Flexible Saver (standard customers) – so it’s important you shop around.
However, at the same time, naming and shaming the best and worst rates on the market will give customers more power over their cash.
“For years savings accounts have operated a suck, slap and flog technique. They suck people in with a decent rate, slap that rate down as soon as they can, then try and flog new accounts with similar names at a higher rate. Over the years this, combined with customer inertia and misplaced loyalty, has led to millions of people with cash in old accounts paying spitworthily low rates,” Martin Lewis, founder of MoneySavingExpert.com, said.
“Anything that tries to tackle this, without curbing the flow of decent new rates for those who actively manage their savings, is positive.
“The FCA’s single easy access rate won’t be a revolution, it won’t mean people automatically earn more.
“It’ll simply mean that there’s one set rate for all antiquated savings accounts. And as the banks are free to set that rate themselves, it could still be lower than a limbo dancer’s belly.
“Yet it isn’t without merit. It should mean it will be far easier for anyone with an old account to find their rate.
“It’ll also make it easier for me and others to shine a light on the poverty of interest many banks pay loyal savers – this can then be used as a clarion call to urge more people to ditch and switch, and to expose poor paying banks to try and heap pressure on them to improve.”
Where should I put my money right now?
Several providers have made rate reductions on easy access accounts over the past year – such as with Virgin Money and Marcus by Goldman Sachs.
You can take a look at the best easy access savings rates, right now, here.
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