UK regulator to stop ‘loyalty penalty’ for cash-saving products
First-time customers for cash-savings products in the UK are getting higher interest rates than existing customers — which is now a no-no
London — Britain’s financial markets watchdog proposed an overhaul of cash-saving products on Thursday designed to improve interest rates offered to long-standing customers.
The UK Financial Conduct Authority (FCA) said last year that first-time customers for cash-savings products were getting higher interest rates than existing customers when they came off introductory offers, dubbed a loyalty penalty in the industry.
Under the FCA proposals, firms will have to set a single easy-access rate (SEAR) across all accounts that let savers withdraw their money when they want in a move that would boost interest payments by £260m a year.
Banks will still be able to compete by offering an introductory rate that is usually cut after a set period.
“Firms will have 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 individual savings accounts (ISAs),” the FCA said.
The FCA said competition in cash-savings products was not working well for many of the 40-million consumers who hold either an easy-access savings account or easy access cash ISA.
Companies will also have to publish data every six months on the SEARs they offer so investors can compare different institutions when they first open a savings account.
The Bank of England’s main interest rate has been hovering around record lows for the past decade, hitting the rates on products such as popular individual savings accounts or ISAs — even before discriminatory rates for long-standing customers.
The watchdog has put out the proposals for public consultation.
“The plans from the regulator would be a dramatic change to the cash-savings market and will mean banks can’t hide behind a vast array of different interest rates for cash accounts,” said Laura Suter, personal finance analyst at investment platform AJ Bell.
“Banks will also no longer be able to quietly ratchet down interest rates they pay on cash savings over time, in the hope that customers won’t notice.”