The Financial Conduct Authority (FCA) is cracking down on savings providers that aren’t passing rising interest rates onto customers following new consumer duty rules which came into play today.
The FCA met with some of the country’s biggest lenders early July to tell them to speed up savings rates increases. But it has now announced providers will have to prove they’re offering “fair value”, otherwise it will take “robust action” by the end of 2023.
The regulator announced a 14-point action plan to ensure savings rates are being passed on appropriately. The Bank of England’s base rate is currently 5%, which should in theory mean higher savings rates.
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But the rates on most products remain paltry, especially when compared to the rapidly rising rates on mortgages.
Here’s what the FCA announced, and how it could affect your savings.
FCA cracks down on poor savings rates
The FCA found the largest lenders have passed only 28% of the base rate increases on to easy access accounts. As for fixed savings accounts, banks have passed on about 51% of rate increases.
“Given how people have seen interest rates on their mortgages, credit cards and loans soar, this is grossly unfair,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
As part of its action plan the FCA will review the timing of firms’ savings rate changes each time there is a base rate change, as this is when providers should be upping their rates.
The Bank of England is expected to hike interest rates at least twice more this year, meaning lenders should be revising their rates regularly.
The FCA will also publish an analysis every six months of firms’ easy access savings rates, looking at the difference between on and off-sale savings deals.
“Banks have been slow to increase rates on cash savings -particularly those in easy access accounts and we’ve seen a gulf emerge in the market between smaller firms offering better rates than their larger, more established competitors,” adds Morrissey.
Currently the best easy access savings account is the Oxbury Personal Easy Access Account. It offers a rate of 4.55%, and can be opened with £1,000.
While the rates on easy access accounts have climbed over the past few months and several providers are offering rates over 4.5%, this continues to lag behind the base rate – not to mention inflation, which is currently sitting at 7.9%, which means consumers are not making any real returns.
The best one-year fixed account savings account is the FirstSave 1 Year Fixed Bond, which offers 6.1% AER. You can open it with £1,000.
The FCA also said firms need to prompt savers with accounts paying little or no interest to look at better options.
What does “robust action” mean?
The regulator said it will take “robust action” in just a few months’ time if firms don’t demonstrate fair value. It added this could include fines.
“Saving rates have picked up thanks, in part, to intense scrutiny from the FCA and MPs who have challenged some banks and building societies that had been miserly with their savings rate increases,” says Myron Jobson, senior personal finance analyst at interactive investor. “The regulator hopes that its 14-point action plan will keep up the pressure.”
“However, any reprieve in cash savings rates is being drowned out by the stubborn persistence of high inflation - with the real value of savings remaining in the doldrums,” adds Jobson.
“Those who can afford to put money away for five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.” We expand on this in our article: Savings vs investing: which is better to help you make more money?
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