Banks are named and shamed over tiny interest rate for savers
ACITY regulator has named and shamed banks and building societies that pay loyal savers interest rates as little as 0.01% or even zero.
The Financial Conduct Authority (FCA) revealed accounts from 32 providers paying poor rates of interest to long-standing customers after findings at the start of the year showed £160bn of funds were earning the same or less than the 0.5% Bank of England base rate.
It exposed cash savings accounts and individual savings accounts (ISAs) that pay as little as 0.01%, while accounts with HSBC and First Direct that are now closed to new customers and cannot be managed in a branch pay zero interest.
Experts said the results are a “wake-up call” to savings providers who leave customers in zombie accounts that pay paltry returns, effectively leaving them out of pocket once inflation is taken into account.
The FCA said it wanted to “shine a light” on treatment of long-standing customers and encourage them to offer better value accounts.
The first so-called “sunlight” study from the FCA comes as part of a raft of measures to make it easier for savers to switch and compare.
FCA plans to make it easier for savers to seek better returns also include text message alerts to remind them when an introductory bonus rate is due to end.
A new rule will force firms to offer prompt and efficient switching to better accounts offered by the same firm, while from January 2017 it will launch seven working day switching for cash ISA transfers.
Christopher Woolard, director of strategy and competition at the FCA, said: “With many savers never switching because they don’t think it will make a difference, our rules will help consumers get the information they need to shop around.
“In a good market, providers should be competing to offer the best possible deal and, should a consumer wish to move accounts, they should be able to do so with the minimum of fuss.”
The watchdog will publish its sunlight information every six months for a year and a half as part of the trial.
The measures, which will come into effect from December next year, are being planned after a market study found that, for many consumers, competition was not working as effectively as it could be.
The regulator stopped short of banning introductory bonus rates, as it believes they may benefit some customers, but said earlier this year that it expected providers to improve the way they communicate about interest rate changes and when the bonus rate expires.
It also wants firms to strip out complex jargon and give customers easy-to-understand key information to help them compare savings accounts by providing summary boxes.
Banks will likewise have to display interest rate information prominently alongside account balances in all rate-related customer communications.
Its findings published in January revealed that many consumers found it difficult to know what rate they were on or were put off switching by the expected inconvenience.
It found 80% of easy-access accounts had not been switched in the last three years.
It also found that older accounts, representing a significant chunk of the £700bn market, tended to have lower rates than those more recently opened.
Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “This is a wake-up call to the banks and building societies which are turning a blind eye to savers who are left abandoned in zombie accounts.” But he warned: “Change in the market is still at least a year away and in the meantime apathy is the savers’ enemy when it comes to getting the best from cash.”
Consumer group Which? also welcomed the FCA plans, saying they were a “step forward for savers”.
Richard Lloyd, Which? executive director, said: “These reforms, when they’re eventually in place, should inject some much-needed competition into the market and help consumers move away from savings accounts with dismal rates.”