Banks and building societies are promoting a sub-standard savings culture, according to the financial regulator, who said that a lack of competition within the industry is prevent savers from accruing the interest they warrant.
The Financial Conduct Authority (FCA) noted that a lack of clarity in the information provided by lenders has led to savers commonly not knowing what rate they are on and abstaining from switching providers as they find the process too cumbersome.
The city watchdog surmised that roughly £160bn of savings held in easy access savings accounts was generating interest at a rate less or equal to the Bank of Englandís record low base rate of 0.5. 80% of easy access account holders have not switched provider in the last 3 years, indicating that ëloyaltyí customers earn no reward for their custom, and are instead shunted on to poor value deals due to their apathy.
Expanding further on this point, the FCA found that older accounts were usually subjected to lower interest rates than accounts which have recently been created, with banks and building societies rarely informing their long-standing clients of the better value of new products.
The FCA implied that the UKís banking giants are the main culprits, due to the sheer omnipresence of their brand names raking in easy access customers regardless of the lower interest rates attached to their accounts.
Christopher Woolard, Director of Strategy and Competition at the FCA, said: “In a good market firms should be competing to offer the best possible deal and consumers should have the information they need to help them shop around.
He added: ìThe steps we have proposed today are designed to make the market more dynamic, working in everyoneís interest.î
Proposing a wide range of reforms to the savings market, the FCA is seeking to inspire a new generation of savers, turning individualsí minds away from the disillusionment and dearth of knowledge characteristic of the UKís current saving culture.
The FCA has impressed upon providers the need for transparency in their marketing ploys, urging them to be clear over the release of better value products and how any fluctuations to the interest rate on a saverís account will affect them over the course of their term.
The onus on providers to orientate their services more to consumers extends to aiding them with the comparison of their savings account with any other product on the market and also helping them understand the switching process.
Facilitating customers with switching is integral to the FCAís proposed reforms, and the regulator has also suggested reducing the current 15 day switching time for those seeking to move their funds into a cash ISA.
However, the FCA has rejected the need for banks to remove misleading bonus rates, which offer consumers great rates on their savings accounts during the initial promotional term, after which the rates become meagre. The regulator noted the benefits of such accounts, and expressed its belief that greater clarity in the relaying of bonus expiry dates and interest rate variations to consumers would be enough to solve this issue.
Which? executive director, Richard Lloyd, said: “For too long, banks and building societies have left customers trapped in savings accounts paying woefully low interest rates and losing out on billions.
“We expect to see the industry working with the regulator to make these recommendations a reality as soon as possible. The banks must quickly start playing fair and help consumers get a good deal.”
The FCA has set the deadline for feedback for 18 February, and will decide the best course of action thenceforth.
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