British financial service industry regulator the Financial Conduct Authority (FCA) announced on Tuesday that its interim report into the effectiveness of competition in the cash savings market has shown that UK banks pay lower interest rates to customers who do not shop around for easy-access deposit accounts.
The study focused on interest bearing cash savings accounts and found that, despite offering lower rates, the largest providers of personal current accounts (PCAs) are currently able to attract a large proportion of easy-access deposits.
Preliminary findings from the FCA research indicate that certain aspects of the cash savings market are of benefit to banking customers; however there are also some concerns that consumers are not getting better deals by switching accounts. Providers of PCAs on average pay lower interest rates to customer who have held accounts for several years, compared to rates for recently opened accounts. A combination of consumers’ reluctance to switch accounts with the high proportion of savings balances held by PCA providers has been found to make it difficult for so-called challenger banks to gain market share and attract balances at a similar cost to the larger providers.
This market study was launched in October 2013 under the FCAs competition objective, in order to assess how competition in the market for cash savings products is working for consumers. The FCA said it has not yet reached firm views on the nature of any competition issues or on market interventions that could be made. It intends to gather more information from providers and consumer organisations, as well as conduct research into the full range of cash savings products, before deciding whether it should intervene to ensure competition is working in the interests of consumers. A final report is expected to be published by the end of 2014.
According to research by consumer organisation Which?, savers are losing out on GBP4.3bn annually by leaving their money in poor value accounts.
Richard Lloyd, executive director of Which?, responded to FCA’s report on cash savings market, commenting: “Which? has found that consumers are losing out on billions of pounds from savings stuck in poor value accounts and the banks are simply not doing enough to help their customers get the best deals.
“While the regulator continues to investigate this market we think providers should scrap the savings trap and do more to help people make the most of their money. 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 ISAs.”