The Financial Conduct Authority may force banks to pay a minimum interest rate to all customers with cash savings accounts, after finding that lenders “take advantage” of customer inertia to pay loyal customers less.
The regulator on Wednesday opened a new consultation on ways to combat price discrimination in the savings market, after finding that previous efforts to improve competition “did not stimulate sufficient changes in customer behaviour”.
Christopher Woolard, FCA executive director of strategy and competition, said:
Efforts to encourage customers to switch have had limited impact and we remain concerned about the way firms are treating customers. This is why we are considering the introduction of a basic savings rate for older accounts, which would promote competition and help get customers a better rate of interest.
Currently, many lenders offer higher interest rates to attract and hold on to newer, more price-sensitive customers, while gradually cutting the rates paid to older accounts.
Large stocks of loyal, cheap deposits provide a competitive advantage to larger banks, which the FCA said last month had stifled efforts of so-called “challengers” to grow market share.
The regulator said its favoured solution would be to introduce a “basic savings rate” — a minimum interest rate that would come into effect on all easy-access cash savings accounts and ISAs after they had been open for a certain length of time. It estimated that customers would benefit by around £300m a year in extra interest payments.
The FCA is also considering more radical solutions including an outright ban on price discrimination in savings accounts, which would force banks to pay all customers — old and new — the same interest rates on comparable accounts. However, it cautioned that the “unintended consequences of this approach could be significant and may outweigh the intended benefits”, due to the importance of savings as a source of bank funding.
Date published: 25 July 2018
Word count: 307
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