UK regulator launches probe into low-paying savings accounts

The FCA’s latest research says nine of the biggest savings providers have passed on 28% of base rate rises to their easy access accounts.

Yesterday, the Financial Conduct Authority (FCA) said it will require firms with the lowest-paying savings accounts to justify their rates by the end of August.

The probe came on the day when the UK’s chief regulator launched its Consumer Duty regulation. This is a set of rules which requires all regulated firms, like banks and investment platforms, to make decisions that are in the consumer’s interests. 

The Consumer Duty legislation will require firms to prove that their products offer customers “fair value”. This means, if required, firms will need to defend their pricing structure or rates on offer for customers.

“We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case,” said Sheldon Mills, Executive Director of Consumers and Competition at the FCA.

Chancellor Jeremy Hunt also endorsed the FCA’s announcement.

“Banks should be passing on interest rate increases to savers, and we’re keeping a close eye on whether they do,” he said.

In addition to launching its new Consumer Duty regulation, the FCA also published its review of the savings market.

Its research found that nine of the biggest savings providers had passed on 28% of base rate rises to their easy access accounts between January and May this year. These providers hold approximately 60% of the country’s easy access deposits. 

These providers include Lloyds Bank, HSBC, NatWest, Santander UK, Barclays, Nationwide Building Society, TSB, Virgin Money and the Co-operative Bank.

Despite the fact that challenger banks and building societies typically offered the best rates, 75% of consumers with savings accounts kept their money with their current account provider.

The FCA said that this has enabled larger banks and building societies with lower rates to hold a larger share of the market.

“We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available,” said Mills.

Last month the Parliamentary Treasury Committee continued its investigation into the savings rates on offer from some of the country’s biggest banks.

It questioned Barclays, HSBC, Lloyds Bank and NatWest on whether their savings rates provided “fair value” for their customers. All four banks responded to Parliament’s probe in a series of letters.

Despite the responses, Harriett Baldwin, Chair of the Treasury Committee, said savings providers with low rates need to make their customers aware that they have better paying accounts on the market.

“Given that the Government, regulator and Governor of the Bank of England agree with the Committee that action is required, the time for weak excuses is over,” she said.