New legislation to hold poor savings rates accountable, says FCA

The UK’s main watchdog still encouraged savers to shop around for the best deals.

The impending Consumer Duty changes are set to hold banks and building societies accountable for its poor savings rates, according to the Financial Conduct Authority (FCA).

This came after the Treasury Committee wrote to the UK’s main financial watchdog to learn how it was keeping the savings market competitive last month.

The new Consumer Duty laws, which are set to be implemented on 31 July, are aimed at making financial products easier for the public to understand. 

In particular, the fair value requirement within the Duty means financial firms, like savings providers, must ensure their customers are getting fair value for their services.

“Through the discussions we have been having with firms ahead of the Consumer Duty, we have stressed our interest in how they have been moving mortgage rates and savings rates,” wrote Nikhil Rathi, Chief Executive of the FCA.

He said that the FCA has been monitoring the speed at which providers had been increasing its savings rates after successive base rate rises, and had probed certain banks and building societies for small increases.

Harriett Baldwin, Chair of the Treasury Committee, welcomed the news that the country’s financial regulator has and will continue to monitor the savings market.

“The regulator has now given us official confirmation that the UK’s biggest banks are profiting from interest rate rises and that loyal savers are being increasingly harmed,” she said.

Baldwin also confirmed that the Treasury Committee will be “keeping an eye” on the FCA to ensure that it acts on its recent assurances.

The recent letter from the FCA comes after the Treasury Committee launched a probe into six high street banks.

It questioned why these banks were slow to raise their easy access rates after the Bank of England had made successive increases to interest rates.

All six banks wrote back to the Treasury Committee last month, defending their savings accounts and listing some of their more competitive accounts on offer.

“We anticipate that the financial regulator will want to look into this issue in further detail, in particular whether the market is truly competitive,” Baldwin said at the time.

In its response, the FCA encouraged savers to switch savings providers if they could get better service elsewhere.

Rachel Springall, Finance Expert at Moneyfacts, agreed with this advice and highlighted that there are some providers currently offering more than 3% on their easy access accounts.

“Convenience is costing savers who keep their cash stashed in an easy access account with a big high street bank,” she said.

She also noted that challenger banks, which offer some of the best easy access rates on the market, also benefit from the Financial Services Compensation Scheme (FSCS). Springall explained that these providers typically offer better rates than the wider market because they prioritise fairer rates for their customers.

“Mutuals may be worth considering, not just for their savings rates, but also for their principles and the support of local communities and charities,” she also noted.