Are you fed up of the interest rate you're getting on your savings? Perhaps you're bewildered by the communications from your bank and don't know what rate you're actually on, or how to switch to a better account. Well, you're not alone, but if proposals from the Financial Conduct Authority (FCA) come into full effect, the £700bn savings market could be set for a shake-up – and competition could start to return to the sector.
The problem with savings
The core problem is the low rates of interest offered by many accounts. In fact, FCA research found that of the funds held in easy access accounts in 2013, £160bn was earning an interest rate equal to or lower than the Bank of England base rate – meaning a huge number of savers were earning just 0.5% or below.
That's hardly a lot, and with inflation being a lot higher in 2013, it meant many people were seeing the value of their money eroded. The research also highlighted the lack of communication between banks and customers, with savers often finding it difficult to know what rate they were on, while others were put off switching because of the perceived inconvenience. As a result, 80% of easy access accounts hadn't been switched in the previous three years, meaning a lot of savers could have been losing out.
The FCA solution
The study found that competition in the savings market often doesn't work well for consumers, particularly those with long-standing accounts, with the FCA believing that it should be easier for consumers to compare accounts and switch providers. As such, they've proposed a number of changes to the market, which include:
It's hoped that this will improve competition and clarity in the market, allowing customers to easily see what interest rate they're getting and if they could be better off elsewhere. While the FCA hasn't specified that a provider must have a certain number of products, it's urging them to review their products and "consider whether their current products deliver good outcomes to consumers", after many have recently simplified their ranges.
The review and proposed changes have been largely welcomed, but there's still a lot for the industry to do if it wants to offer a better environment for savers. Rachel Springall, finance expert at Moneyfacts, comments: "The latest announcement from the FCA is a stark reminder that savers have little incentive to move from their current provider. While it is great step for the regulator to scrutinise this area of the market, it is the rates on these accounts that really need improvement.
"Savings rates are at historic lows, particularly variable accounts that provide instant access, and so until rates improve, customers are unlikely move their money elsewhere. Another important part to evaluate on these deals is the time it takes to move money from the savings pot into the bank account, and when this improves, so will the desire to switch."
More competition = better rates?
The proposals haven't yet been finalised and they're still subject to change, but if approved, the new rules could come into effect later this year. But just what does it mean for consumers? Hopefully, this improved competition will eventually lead to an improvement in rates – the ease of switching and better clarity could mean that savers are more likely to switch, so providers will need to work harder to ensure that doesn't happen.
Until that time, there's unfortunately not a lot of good news for savers in the current market. Savings rates are continuing to fall – latest figures from Moneyfacts show that average ISA rates remain at record lows, with all fixed rates still falling – which is why it's so important to get the best deal you can. Check out our best buys to find the rates that can give you the returns you're after, and don't be afraid to switch!
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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