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FCA breaks cover on major shake-up to savings market

The Financial Conduct Authority's (FCA) is proposing to reform the easy access cash savings market.

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The Financial Conduct Authority (FCA) will seek to reform the easy access cash savings market, making firms set a single easy access rate (SEAR) across all easy access accounts. 

Firms will have the flexibility to offer multiple introductory rates for up to 12 months, then they will need to choose one SEAR for their easy access cash savings accounts, and one for their easy access cash savings ISAs.

Christopher Woolard, Executive Director of Strategy & Competition at the FCA said: ‘Competition is not working well for many of the 40 million consumers with easy access savings accounts and we want that to change. Our proposals would mean firms have a single rate for customers immediately after their accounts have been open for 12 months. Firms will choose the rates they offer, and the rates they offer will have to be clearly published.

"This will prevent firms from gradually reducing interest rates over time and make them compete for all their customers. We are concerned that many longstanding customers are seeing a poor outcome and we want firms to focus more on these customers. The new rate will also make it easier for savers to know whether they are getting a good deal after any introductory offer has expired."

The FCA expects that longstanding customers will benefit from higher interest rates because firms will compete more and estimates that consumers will benefit by £260m from higher interest payments.

Eric Leenders, Managing Director, Personal Finance at UK Finance struck a more sceptical note. He said:  “The banking and finance industry has already implemented a number of remedies to improve competition in the cash savings market, helping savers to shop around and find the best possible deal. These include communicating more clearly with customers about the rates they receive, faster Cash ISA transfers and enhanced customer prompts before a rate is reduced.

“Banking business depends on there being an adequate margin between what a provider pays for its deposit funding and what it charges for the loans it makes available. Regulatory intervention that increases the overall cost of deposit funding for providers will, in general, result in providers having to raise the cost of loans they make available to house purchasers and other borrowers."

The FCA is now seeking feedback on the proposals set out in this Consultation Paper, by 9 April 2020.

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Christopher Woolard

Director of Strategy and Competition

Financial Conduct Authority

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