‘Basic savings rate would stop banks exploiting loyal customers’

BANKS could soon be forced to pay savers a minimum interest rate on their money under plans by the City watchdog.

The move, put forward yesterday by the Financial Conduct Authority (FCA), is designed to combat “price discrimination” faced by savers who stay loyal to their provider.

A significant portion of savers’ money is sitting in so-called “easy access” cash savings accounts which were opened a long time ago, earning lower interest rates than those opened more recently. According to Citizens Advice the move could make the nine in 10 adults with a savings account in the UK £50-a-year better off, on average, than they are currently.

However, there are also fears that the extra cost burden on banks could lead to the best savings deals being watered down, giving savers less incentive to switch to find a good deal.

Susan Hannums, the founder of savings advice website Savings Champion, said: “For years now providers have slashed rates on savings accounts with little regard for the saver. With some easy access savings accounts on the high street paying as low as 0.05 per cent, it’s a truly shocking state.

“A basic savings rate will indeed help those savers with money sat in accounts paying next to nothing. However, with the providers setting the bar this could actually lead to a lowest common denominator – will the providers play fair when they are given a free rein?”

The FCA’S plan would require savings providers to have a single interest rate on to which a cash savings account reverts after a certain period of time, such as a year, enabling more uniform pricing across the accounts.

Firms would pay a slightly higher overall average interest rate to their customers, which could add up to an estimated net increase of between £150 million and £480 million per year for the market total, the regulator said.

The FCA is concerned the interest rates that longstanding customers receive on easy access cash savings products are generally lower than those received by customers who shop around.

The regulator has released a discussion paper asking for feedback on “how to address the harm caused by this price discrimination”.

It suggested a basic savings rate could apply to all easy access cash savings accounts and easy access cash Isas after they have been open for a set period of time.

Christopher Woolard, the executive director of strategy and competition at the FCA, said: “Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.

“While many customers have valid reasons for not shopping around, providers must still treat them fairly.”