Savers are being ripped off by banks, says City watchdog
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Wednesday 09 July 2014
The City watchdog confirmed yesterday what millions of savers have known for years – that we’re being ripped off by our banks. How? The Financial Conduct Authority (FCA) has concluded that banks penalise loyal customers with lower interest rates.
The regulator’s comments came after it published the results of a nine-month investigation into the UK’s £1 trillion cash savings market. Its conclusions are damning for Britain’s banks.
It said that because many consumers do not shop around, banks can pay lower interest rates to customers who have stayed with the same account for a number of years. On top of that, the biggest current account providers are able to attract a large proportion of easy-access deposits despite on average offering lower rates.
Christopher Woolard, director of policy, risk and research at the FCA, said: “Competition does not appear to be working in the interest of many consumers.”
With savings rates remaining at record lows for five years, anyone looking for a decent home for their nest-egg has been disappointed. But even the paltry rates that have been offered have been quietly cut by banks, said Anna Bowes of SavingsChampion.co.uk.
“It’s a real concern that providers seem able to cut rates on existing savings accounts at will, as they know that the majority of savers will stay put, even if the rate of interest they are earning has fallen to an uncompetitive level,” she said.
Things have worsened in the past two years after the Government launched Funding for Lending to give banks cheap credit to allow them to lend to small businesses.
Since the scheme was introduced in August 2012, there have been more than 2,000 cuts to existing savings rates, says Bowes.
Which? executive director Richard Lloyd said: “Consumers are losing out on billions of pounds and the banks are simply not doing enough to help customers get the best deals.”
The FCA will now investigate further before deciding whether to take action. It will consider ways of ensuring that more consumers are aware of the rates they receive and the rates offered on other accounts.
It will particularly look at what information customers are given when rates change, especially after any short-term introductory offer ends.
It is also considering what can be done to make it easier to move savings to a new provider, particularly to the so-called challenger banks, and whether other intervention may be necessary.
“In this market there is a minority of very active, very engaged consumers who regularly change provider to get the best deal,” said Mr Woolard. “We want to look more closely at what is inhibiting the majority of consumers from getting better deals.”
The ideal situation is a market in which informed consumers are able to take advantage of the best products, with firms actively competing to win business by improving the products they offer, the FCA said.
It will make its final report in the autumn, which Sylvia Waycot of data provider Moneyfacts said is not before time. “For too long savers have had to suffer whatever paltry rates are offered to them, so it is not before time that the regulator should step in to ensure fair play,” she said.
“This is a great opportunity to put faith back into the savings market, to make it worthwhile and, most of all, rewarding.”
But Lloyd said banks should start to play fair now. “While the regulator continues to investigate, providers should scrap the savings trap and do more to help people make the most of their money,” he said.
“Banks should be crystal-clear about interest rates, let people know when bonus rates come to an end and make it easier for people to switch.”
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