The FCA has today set out a 14-point action plan to ensure banks and building societies are passing on interest rate rises to savers appropriately, that they’re communicating with customers much more effectively and offering them better savings rate deals.
Today’s plan follows a review of the cash savings market[1] and a roundtable held with banks[2] in early July. The FCA found that while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts. Nine of the biggest savings providers, on average, only passed through 28% of the base rate rise to their easy access deposits between January 2022 to May 2023. Notice and fixed term deposits have seen greater pass through of rate rises, with these 9 firms passing through 51% over the same period. There has also been significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.
Firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value, according to the Consumer Duty[3] which enters into force today. If they are unable to do so, the FCA will take action. Firms will also need to step up their communications with their customers about their options and measure the effectiveness of their communications campaigns. Together with the Information Commissioner’s Office, the FCA recently clarified how savings providers could inform their customers about the best available rates, even where they had opted out of marketing.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: 'We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates.
'We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case – with firms required to prove to us that they are offering their customers fair value.
'We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available.'
As consumers continue to face financial pressures due to the increase in the cost of living, it is critically important that customers can benefit from competitive interest rates to protect the value of their savings and that customers receive fair value from firms as required by the Consumer Duty.
As part of its action plan, the FCA will:
1. Require firms offering the lowest rates to provide their fair value assessments under the Consumer Duty by 31 August 2023 and take robust action by the end of 2023 against those who cannot demonstrate fair value.
2. Review the timing of firms’ savings rate changes each time there is a base rate change.
3. Publish an analysis every 6 months of firms’ easy access savings rates, listing distribution from best to worst.
4. Analyse the difference between on-sale and off-sale products, challenging firms to explain how large differences offer fair value and considering further action if this gap does not continue to close.
5. Review firms’ performance on cash ISA to cash ISA switching.
6. Conduct further analysis into the contribution of cash savings to firms’ profitability.
7. Review the effectiveness of firms’ engagement with customers by the end of March 2024 and take action if firms have not effectively delivered the outcomes the FCA has set out.
8. Work with others, including the Money and Pensions Service, to identify what more can be done to support consumers to save regularly, strengthening their financial resilience.
The FCA expects firms to:
9. From today, use their fair value assessments of on-sale savings products to assure themselves and the FCA, where needed, that these represent fair value for customers.
10. Accelerate their fair value assessments for off-sale accounts ahead of the July 2024 Consumer Duty deadline for off-sale accounts.
11. Take action to prompt their customers in lower paying savings accounts or non-interest bearing accounts to consider alternatives.
12. Closely monitor the effectiveness of customer communications, with larger firms providing the FCA with an evaluation by end 2023 and any follow up action they are taking.
13. Support consumer financial resilience by encouraging customers to start saving and/or search for higher rates, with the largest firms committing to support a targeted firm-by-firm communications campaign.
14. Consider how they can support their customers to access the free advice available from MoneyHelper.
The largest savings providers have also voluntarily committed to increase the efficiency of cash ISA to cash ISA switching, explore the potential for Open Banking to make savings work harder for consumers and work with the FCA to develop a savings dashboard which gauges consumer activity in the savings market.
The measures outlined today support the FCA’s strategy to reduce and prevent serious harm, raise standards and promote competition. The FCA is continuing to monitor the market and will take further action if it doesn’t see significant progress by the end of 2023.
Notes to editors
- Cash Savings Market Review 2023[1]
- Joint letter from the ICO and FCA[4]
- FCA statement of 6 July 2023[2]
- The Consumer Duty[3] sets higher and clearer standards of consumer protection in financial services and means firms must focus on delivering good consumer outcomes. The Duty means consumers should receive the support they need, when they need it, communications they understand, and products and services that meet their needs and offer fair value.