When was the last time you changed your savings account? For many people, it won't be recent. Despite the fact that many will be earning pitifully low levels of interest, people still seem reluctant to switch accounts, be it through misplaced loyalty towards their current provider, or a perceived difficulty in switching. Well, this could soon be a thing of the past, with the industry regulator stepping in to make the process easier.
The Financial Conduct Authority (FCA) is set to introduce a series of proposals aimed at making the switching process quicker and easier, and it's all about requiring firms to be more transparent. The rules will force firms to provide clear information on their interest rates (including a key information or summary box), and they'll also be required to actively alert customers to changes in rate or when they're approaching the end of an introductory period or fixed rate bond, for example.
The switching process should be made easier, particularly for customers who want to switch to a different account with the same provider – firms will be required to use identity information and documents already held, and may want to offer simple switching through online or mobile banking, the rules state.
The FCA itself will publish details on the firms that offer the lowest rates so customers will know when they're getting a poor deal, and as an added bonus, it's working with the industry to deliver seven-day switching for the majority of cash ISA transfers from January 2017. This will bring the ISA market in line with current accounts – the Current Account Switch Guarantee has offered seven-day switching since September 2013, so the fact that ISAs will soon be following suit is welcome news.
The new rules are in response to the FCA's market study into competition in the cash savings market, where it was found that competition in the £700bn sector wasn't working as effectively as it could do for many consumers.
Christopher Woolard, director of strategy and competition at the FCA, said that "providers should be competing to offer the best possible deal, [and] consumers should expect the information they need to shop around to be clear and easy to understand". He added that consumers should be able to make an informed decision and move accounts with a "minimum of fuss" when they choose to, and hopefully, the proposals will ensure just that.
The rules aren't yet set in stone as the FCA is seeking feedback on the proposals, but it's expected to confirm finalised rules later this year. If approved, some of the measures could come into force in 2016, so it shouldn't be long until we get a better-functioning market.
The industry has largely welcomed the proposals, as they're "clearly for the benefit of savers", said Rachel Springall, finance expert at Moneyfacts.co.uk. The rate alert system could be particularly useful as it'll help consumers to plan better, particularly those who are less proactive, and "making the worst deals clear to customers will save people the run around when it comes to choosing the best account", added Rachel.
However, there are still concerns that the changes may not have the desired effect. For one thing, changing processes can be costly and could lead to providers streamlining their range (in other words, removing good deals from the market), but there's also the distinct lack of competition that currently reigns.
"Implementing any changes to speed up the switching process and make it easier is encouraging, but the fundamental reason why people lack the incentive to chase down a better deal is due to the poor rates on offer," said Rachel. "For example, the average easy access account today pays just 0.67%, [while] the average ISA rate now stands at 1.45%, down from 1.57% a year ago.
"Savers will find much better rates on current accounts, with some deals offering up to 5% AER – a rate you certainly won't find on any standard savings account. There are some fantastic new challenger banks on the market that offer outstanding rates, too, so they are a great choice for anyone who is fed up with their current savings provider."
The fact that rates are so low is arguably a key reason why so few people bother switching accounts, but hopefully, the drive to make providers more transparent in their rates – and highlighting those who don't make the grade – will encourage competition. This could ideally lead to higher rates, but in the meantime, make sure to be proactive and compare accounts regularly. That way, you'll hopefully get a better deal sooner rather than later.
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.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.