Global: FCA Takes Action to Improve Bank Savings Rates in Line with Consumer Duty Rules

The UK Financial Conduct Authority (FCA) has taken its first step under the new Consumer Duty rules by introducing a 14-point action plan aimed at boosting cash savings interest rates.

Banks in the UK have faced criticism for providing minimal interest on customer deposits during a period of inflationary pressures and rising base rates.

The FCA’s action plan comes after a thorough review of the cash savings market and a roundtable discussion with banks in early July. The investigation revealed that while interest rates on savings accounts have been increasing, the rise has been slower for easy access accounts.

On average, nine major savings providers only passed on 28% of the base rate rise to their easy access deposits between January 2022 and May 2023. In comparison, notice and fixed term deposits experienced a higher pass-through rate of 51% over the same period. Additionally, there were notable differences between firms, with smaller ones offering higher interest rates on average compared to their larger counterparts.

Under the new regulations, firms offering the lowest savings rates will be required to justify by the end of August how these rates offer fair value, as mandated by the Consumer Duty, which comes into effect immediately. The FCA has pledged to take “robust action” against firms that fail to demonstrate fair value.

Furthermore, companies will need to improve their communications with customers regarding their options and evaluate the effectiveness of their communication campaigns. The FCA, in conjunction with the Information Commissioner’s Office, has recently clarified how savings providers can inform customers about the best available rates, even if they have opted out of marketing.

Sheldon Mills, executive director of consumers and competition at the FCA, emphasizes the need for a competitive cash savings market that offers better deals for savers, with interest rates promptly adjusted following base rate changes, and firms actively encouraging savers to switch to accounts with higher rates.

Leading savings providers have voluntarily committed to enhancing the efficiency of cash ISA to cash ISA switching, exploring Open Banking’s potential to benefit consumers, and collaborating with the FCA to develop a savings dashboard that tracks consumer activity in the savings market.

Mills adds, “We welcome the progress made so far, but this needs to accelerate. With the Consumer Duty in place, firms must prove to us that they are providing their customers with fair value.”