The Courier & Advertiser (Angus and Dundee)
Banks face crackdown
BA NKS THA T rely on customer inertia to pay ultra-low interest rates on savings accounts are facing a potential crackdown from the City watchdog.
The Financial Conduct A uthority (FCA ) is considering whether to intervene in order to boost competition within a market in which six providers hold roughly two thirds of all cash savings balances in the UK.
It is concerned that because many consumers do not shop around, banks are able to pay lower interest rates to customers that have stayed with the same account for a number of years.
A t the end of last year, the average interest rate on easy access accounts opened in the last two years was around 0.8%, but the equivalent rate for accounts that were opened more than five years ago was less than 0.3%.
The FCA said: “Low levels of switching by consumers and the high proportion of savings balances held by personal current account providers have been cited by new and growing firms as a key barrier to expansion in this market.
“Because many consumers are not inclined to switch account and/or provider, it is difficult for new firms to attract these consumers, and to attract and retain those consumers that do switch, these firms must offer relatively higher interest rates.”
The regulator estimates 82% of adults in the UK have a savings account, with the average sum amounting to £6,400.
The investigation has been focused on easy access accounts and no-term cash ISA accounts, which are estimated to account for around two thirds of total cash savings balances held by firms in the study.
A t the largest firms, more than 80% of their total balances in easy access accounts are held by consumers who also hold a current account with the same provider.
The average interest rate offered by these leading current account providers on easy access savings accounts opened in the last two years is around 0.5%, but the equivalent rate offered by other providers is 1.2%.
Richard Lloyd, executive director of consumer group Which?, said banks are not doing enough to help their customers get the best deals.
He said: “Banks should be crystal clear about interest rates, let people know when bonus rates come to an end and make it easier for people to switch Isas.”