FCA: Banks are still short-changing savers

Large numbers of savers are still being ripped off by accounts paying rates of less than 1%.

New data released by the Financial Conduct Authority (FCA) as part of its investigation into the savings market has highlighted the appallingly low rates that are being offered on accounts no longer on open sale. 

While the regulator said that pressure from the FCA and MPs had been effective in pushing savings providers into offering better deals to savers generally, as we are now seeing some of the best rates in over 14 years on top savings accounts, this is not the case for savers with money in off-sale accounts.

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Banks and building societies were criticised extensively last year for being slow in passing on increases to base rate to their savings customers, or for failing to pass on those increases in full to savers. 

It led to the regulator launching an investigation into the cash savings market, with the FCA now stating that this public pressure did lead to providers upping their game.

Earlier this year it threatened ‘robust action’ against providers with the lowest savings interest rates. 

But are banks still doing enough to give savers the best rates and could you be missing out? 

Paying dreadful rates on closed savings accounts

While rates have improved on savings accounts that are still available to new customers, the situation is rather different on accounts that have been closed.

Many savers have money in accounts that can no longer be opened, and are suffering from dreadful rates according to the regulator, which said that they offer “some of the lowest rates available on the market”.

In fact the regulator found there are 16 accounts no longer on sale which pay a rate of less than 1%, while one pays no interest at all.

Here are some of the easy access accounts pinpointed by the regulator, and the rates you’ll receive on balances of £1. 

• Virgin Money Passbook Account ‒ 0%
• Northern Rock Save Direct Access ‒ 0.1%
• ICICI Bank HiSave Bonus Saver Account ‒ 0.2%
• Virgin Money Instant Savings Account ‒ 0.2%
• UBL UK Personal Sterling Savings Account ‒ 0.2%
• Yorkshire Bank Savings Account Plus ‒ 0.2%
• Virgin Money Everyday Saver ‒ 0.25%
• Saga Internet Saver Stage 2 ‒ 0.25%
• Hampshire Trust Bank Online Easy Access ISA ‒ 0.4%
• Citibank Flexible Saver ‒ 1%
• Cynergy Bank Online Easy Access Account ‒ 1%
• Tesco Bank Instant Access Savings Account ‒ 1.1%
• Santander Instant Saver ‒ 1.2%
• Sainsbury’s Bank Online Saver ‒ 1.3%
• Halifax Variable ISA Saver ‒ 1.3%
• Lloyds Bank Online Saver ‒ 1.4%
• TSB Flexible Savings Account ‒ 1.4%
• Bank of Scotland Instant Access Savings Account ‒ 1.45%

When you consider the higher rate accounts are offering returns of up to 7%, it’s clear that savers with money in these accounts are being completely ripped off.

While the FCA did not publish information around how many people are using these accounts, previous analysis from Paragon Bank suggested that as much as £250 billion of savers’ money was being kept in accounts earning rates of below 1%.

Sheldon Mills, the executive director of consumers and competition at the FCA, said: “We want firms to keep prompting customers in lower paying accounts to move, and we encourage customers to shop around for the best savings deals.”

New rules kick in from next summer, forcing savings providers to demonstrate that they are offering fair value through off-sale products, but until then it’s up to individual savers to be proactive in ensuring they are getting a decent return from savings accounts that are no longer open to new customers.

Have bank savings rates improved?

Savings providers had been incredibly slow to pass on increases in the base rate to their savers, with some experts saying they are dragging their heels.

The FCA found that in the aftermath of the first six increases to base rate from its previous record lows, which took place between January 2022 and September 2022, it took an average of 11 weeks for providers to make any changes at all to their savings accounts - including easy access and fixed savings. 

And even when changes were made, it was not uncommon for providers to only make small improvements to their deals, delivering yet more disappointment to savers.

The situation started to improve when banks and building societies were the target of public criticism from both the FCA and politicians. According to the regulator’s report, it was around this time that the wait for improvements to savings rates following base rate increases dropped down to an average of five weeks.

There was then a further improvement in the aftermath of the FCA’s initial report into the behaviour of banks on cash savings, with the average wait sliding down to just three weeks. 

The clear implication here is that savings providers effectively had to be publicly shamed into doing the right thing. It was only when their antics came under the public gaze, when they were called out for letting their savings customers down, that they felt compelled to actually deliver the sorts of interest rate movements which should have been standard.

Looking beyond the high street for savings

If you want to get a decent rate on your savings, it’s important to compare deals from across the full market and not just the high street.

While the FCA’s investigation has pushed high street banks and building societies into raising their game, the reality is that they may not be the best option for our cash savings.

As Mark Hicks, head of active savings at Hargreaves Lansdown, explains: “The FCA savings review, and pressure from MPs, finally persuaded the high street giants to shift off their rock bottom rates. And it was about time too. But it doesn’t mean we can afford to leave our savings with them – because they’re not a patch on the best on the market.”

Essentially, while the big names are doing a better job than was previously the case, their smaller rivals often offer better returns, so need to be included in any comparison when determining the next home for your savings stash.