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The financial regulator has today published a discussion paper that seeks to address price discrimination in the cash savings market. One of its main proposals is the introduction of a basic savings rate, which could help easy access customers languishing in low-paying accounts.
With 87% of British adults having some form of cash savings, price discrimination against people who stay in the same savings account for too long could have quite an impact. For instance, someone who's kept their £5,000 emergency fund in the same easy access account paying 0.05% interest for years could be missing out on £67.50 over just one year compared to someone who switches to the current top-paying easy access account from Coventry BS, which pays 1.40% including a bonus.
That's why the Financial Conduct Authority (FCA) is seeing if it can step in to help those being punished for their loyalty. "Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers," Christopher Woolard, executive director of Strategy and Competition at the FCA, stated. "While many customers have valid reasons for not shopping around, providers must still treat them fairly."
Its suggestion, among other suggestions that can be found in the paper, is to set a basic interest rate that would apply to all easy access cash savings accounts and ISAs after a customer has been with the same provider for a certain length of time, such as a year. "Efforts to encourage customers to switch have had limited impact and we remain concerned about the way firms are treating customers," Christopher explained.
However, Moneyfacts.co.uk finance expert Rachel Springall warns that the proposal could have some unfortunate side-effects: "Keep in mind that if banks or building societies are pressured to raise their savings rates, then they may have to change their propositions elsewhere, by adding or increasing fees to their current accounts or changing eligibility criteria for instance, or even withdrawing their account entirely. We have already seen many accounts on the market that limit the number of withdrawals per year and will cut the interest rate down as a penalty."
As feedback on the FCA's discussion paper is welcome until October, this measure is not likely to appear any time soon, if it is implemented at all. Keen savers will therefore have to keep an eye on the easy access charts themselves, to make sure they have hold of the most competitive rate available, and switch where necessary.
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