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FCA: Customers failing to shop around for savings accounts

The FCA has warned the cash savings market is not working competitively for many consumers who fail to shop around.

The regulator has today published the interim findings of a study into the cash savings market. It says the unwillingness of some savers to switch providers allows banks to pay lower interest rates to those who stay with the same account for several years.

In addition, the FCA says the largest current account providers are able to attract a large proportion of cash deposits despite offering lower rates on average compared to other providers.

FCA director of policy, risk and research Christopher Woolard says: “Our preliminary view is that while some aspects of the cash savings market are working well, competition does not appear to be working in the interest of many consumers.

“In this market there is a minority of very active, very engaged consumers who regularly change provider to get the best deal. We want to look more closely at what is inhibiting the majority of consumers from getting better deals.” 

The regulator says it will undertake further research before deciding whether to intervene in the market.

It will also look at what could be done to ensure more consumers are aware of the interest rates they receive and the rates on other accounts; what information customers are given when rates are changing; and what could be done to make it easier to switch providers.

The FCA will publish its final report on the market in late 2014.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 8th July 2014 at 9:14 am

    The factors “inhibiting” consumers from shopping around for better deals on their cash savings are inertia and unwillingness to pay intermediaries to do it for them. Unless the FCA forces DTIs effectively to point out to their customers that they’re on a very poor deal and that better alternatives may be available from a competitor, I can’t see how things will change. It’d be a bit like mandating OM as the default option for all Cash ISA accounts every 12 months.

    But, given that the FCA, for reasons known only to itself, seems to be unable or unwilling to mandate OM even for retirement funds approaching their vesting date, it’s hard to see how they’re likely to do it for cash savings. And, if it did for the former, there’d surely be a considerable clamour for it to issue a similar directive for the latter. What then?

  2. Steven Pearman 8th July 2014 at 10:13 am

    Yet another bit of research that no doubt cost a fortune and brings nothing new to the table.

  3. Cash accounts – What cash accounts – there are no returns on cash accounts!!
    Cash accounts have over the past 4 years gave an interest rate below inflation, they were all like that.
    There was nowhere to to turn on cash accounts.
    Wake up Woolard. “Our preliminary view is that while some aspects of the cash savings market are working well, competition does not appear to be working in the interest of many consumers.
    What competition – there were no cash accounts that provided a positive return so why switch!!
    ” It says the unwillingness of some savers to switch providers allows banks to pay lower interest rates to those who stay with the same account for several years.” The government has allowed the banks to get away with this wholesale interest rate manipulation. As usual Joe Public is the looser.

  4. This is surely a philosophical question rather than a psychological one?

    Julian has pointed out the reasons, it’s human nature, it won’t change. You can lead a client to an interest rate but however much you berate them they won’t do anything unless it’s important specifically for them right there, right then.

    The real question is the extent to which caveat emptor and competition should existin the financial services market. The FCA has failed to lay down a definitive basis on which to operate and instead, as the FSA before it, comes up with ‘bright ideas’ on a piecemeal basis that lacks structure and confuses firms (who are resigned to simply reacting to these initiatives). Add in the fact that there’s a commercial disadvantage and no regulatory dividend for leading the way and you get where you are. No surprises except to the idealists and academics with no real experience of the real world.

    The FCA would do well to ask how they can create and foster an environment where firms are encouraged and rewarded for doing the right thing. Instead we are subject to a regime that is best summed up as “floggings will continue until morale improves”…

  5. When customers try to switch they are politely advised that the loss of interest notified when the new rate was fixed is in fact a penalty! Client bringing paperwork in this afternoon in relation to a fixed rate ISA that matured in February. Rolled over in to new rate fixed for 5 years. Actionned over the telephone. Told loss of interest if switched. However now looking to transfer ISA but told that 365 days interest is the cost. Approx £500+. Interest not yet earnt! Therefore a penalty not, as claimed, a loss of interest. Fair, clear and not misleading? I think not.

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