The savings rates on offer from major banks and building societies have improved but savers can still do better by shopping around, according to the Financial Conduct Authority (FCA).
It comes after the City watchdog launched a cash savings market review last year amid concerns that providers were failing to pass on interest rate rises to savers with easy access accounts.
The regulator said it would take “robust action” against firms if they didn’t pass on interest rate rises to savers appropriately, offer better deals and communicate effectively.
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Since July 2023, the average interest paid on easy access savings accounts has increased from 1.66% to 2.11% in June 2024, following the FCA’s intervention.
The regulator estimates that savers are £4 billion a year better off from higher interest rates as a result. But you could still do better by shopping around as the rates on offer from high street providers rarely feature among the best buys.
The FCA has also warned that it will monitor how quickly providers cut their savings rates as interest rates decline.
“Overall, the FCA review of the market seems to have made a real difference – supported by the Consumer Duty rules,” says Mark Hicks, head of active savings at Hargreaves Lansdown.
“It helped persuade the high street giants to stop prevaricating and pass on at least some of the benefit of higher rates. As a result, average rates at these banks rose around twice as fast as the Bank of England rate in the year following the review.”
What is the FCA's cash savings market review?
The FCA began looking into the cash savings market in early 2023 amid concerns that banks and building societies were essentially profiting from rising interest rates by failing to pass on increases to savers while charging more for mortgages.
It comes as interest rates rose from 0.25% in February 2022 to 5.25% in August 2023 before the Bank of England’s latest cut last month.
Savings rates did hit a 15-year high last year but the FCA was concerned at how slowly rate rises were being passed on.
The regulator began working with the UK’s largest financial brands last year, Lloyds Banking Group, HSBC, NatWest Group, Santander UK, Barclays, Nationwide Building Society, TSB Bank, Virgin Money UK and The Co-operative Bank, to see how they provide fair value to easy access savings customers.
Has the cash savings market review made a difference?
The FCA’s latest analysis shows higher rates have been passed on to savers, with easy access accounts recently going above 5%.
But it highlights that high street brands may not offer consumers the best deals.
There were 174 accounts that offered over 4% interest in August, the FCA said, while the largest firms continue to pay below average for easy access products.
Hicks adds: “You can still make far more on your savings beyond the high street banks.
“Online banks and cash savings platforms tend to consistently offer far better rates, so it’s well worth taking a few minutes to shop around. You may be surprised by just how much interest you can still make on your money.”
The FCA acknowledged that recent interest rate cuts may mean savings rates come down but it warns that it will expect a “clear explanation” if a firm has changed its savings rates “significantly more quickly and fully in response to interest rate reductions, compared to previous interest rate increases.”
Tim Hogg, director at consumer group Fairer Finance, says he would expect further regulatory action as the FCA monitors how banks respond to rate cuts.
He says: "We continue to see some providers sending vague and ineffective emails to their savings customers, which don't cut through the noise."
The regulator said that it may not provide further updates on the savings market but suggested that providers must follow its Consumer Duty rules to treat savers fairly.
“As the Bank of England base rate comes down savers should be alert to falling rates of interest on cash, and be prepared to switch to find a better deal,” says Charlene Young, pensions and savings expert at AJ Bell.
“While news that easy access rates improved slightly in response to pressure from the City regulator is welcome, it is still crucial to shop around to get the best deals.”
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