Cascade Commentary

FCA begins discussion on introducing a Basic Savings Rate for Savers

The Financial Conduct Authority (FCA) has set out a range of options in attempts to better the outcomes for longstanding customers on easy access accounts in the UK cash savings market. In 2015, the FCA released its comprehensive study into the cash savings market. This report showed that 87% of UK adults hold cash savings, but customer outcomes were shown to be poor with competition not working very well for savers who remain with the same provider for a long time.

The regulator proposed four savings remedies at the time, including Disclosure (aimed at bettering the quality and clarity of information provided to customers), Convenience (aimed at reducing the barriers to saving with different providers by allowing balances and rates to be viewed in one place), Sunlight (aimed at increasing the level of transparency from providers when interest rates are reduced on variable rate products), and Switching (aimed at making the act of switching accounts an easier process).

Since then, the FCA have implemented a series of packages to address the poor customer outcomes found in 2015 but have continued to feel that such measures have failed to stimulate sufficient change in customers behaviour, which in turn has failed to improve customer outcomes for longstanding customers.

The Discussion Paper released in July 2018 is seeking feedback on proposals to address the harm caused by the price discrimination of new customers versus longstanding ones. In these proposals, the regulator has suggested implementing a basic savings rate (BSR) for older accounts, which would act as a minimum level of interest for longstanding customers to be treated fairly while maintaining competitive rates for those that shop around.

An older account, otherwise known as a back-book account, is defined by the regulator as one that has been held for five years or more. Such accounts typically earn lower interest than those that have been opened more recently (termed a front-book account). This is particularly true for easy access accounts that often include a bonus element to the interest rate earned that falls away after a set period of time, usually twelve months. Without action thereafter, the customer's interest rate falls and with customer inertia high, this tends to take place regularly.

The regulator is seeking input to the proposal for a BSR which would be a variable interest rate that would apply to all easy access cash savings accounts after they have been opened for a set period of time. The regulator is requesting comments to be received by 25 October 2018. Should you have any thoughts, do let us know and we'll be sure to send on to the regulator.


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