FCA ramps up pressure on banks to pass on higher rates to savers
The City regulator is putting further pressure on banks to pass on base rate hikes to savers, in line with the new Consumer Duty which comes into force today.
The Financial Conduct Authority (FCA) has outlined a “14-point action plan” on cash savings, which will require firms offering the lowest rates to provide their fair value assessments under the Consumer Duty by 31 August.
The FCA said it will “take robust action by the end of 2023 against those who cannot demonstrate fair value”.
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The regulator is also set to publish rankings of firms’ easy access savings rates every six months, review the timing of savings rate changes and assess banks’ performance on cash ISA switching.
The new Duty sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first. The rules relate to four key areas: products and services; price and value; consumer understanding and consumer support.
The FCA’s plan follows a review of the cash savings market and a roundtable held with banks in early July.
It found that while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts.
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Nine of the biggest savings providers only passed through 28 per cent of the base rate rise, on average, to their easy access deposits between January 2022 to May 2023.
This compares to 51 per cent of the base rate rise, on average, passed through into notice and fixed-term deposit accounts over the same period.
The FCA also noted significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.
“We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates,” said Sheldon Mills (pictured), executive director of consumers and competition at the FCA.
“We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case – with firms required to prove to us that they are offering their customers fair value.
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“We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available.”
Higher rates on savings accounts will have a knock-on impact on the peer-to-peer lending industry, where platforms have been raising their investor target returns to compete with deposits.
Read more: easyMoney hikes rates for fourth time this year
