The FCA has today set out a 14-point action plan – Cash Savings Review 2023 (the Review) – to ensure UK banks and building societies are:

• passing on interest rate rises to savers appropriately;
• communicating with customers much more effectively; and
• offering them better savings rate deals.  

The plan follows a review of the cash savings market and a roundtable held with banks in early July, which included Britain’s Big Four banks – Barclays, HSBC, Lloyds and NatWest. It comes in the wake of increasing pressure from politicians and consumer campaigners on UK lenders to raise rates for savers as fast as they have been raising rates on mortgages.

Competitive cash savings market 

The FCA found that while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts. Nine of the biggest savings providers, on average, only passed through 28% of the base rate rise to their easy access deposits between January 2022 to May 2023. Notice and fixed term deposits have seen greater pass through of rate rises, with these nine firms passing through 51% over the same period. There has also been significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.  

Consumers collectively hold £1.5 trillion ($1.9t trillion) in savings accounts. Consumers rely on savings products to help meet financial goals. At a time of higher cost of living, savings are are an important source of financial resilience. It is important for consumers and the wider economy to have a competitive cash savings market.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “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”.  

Fair value for customers

Firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value, according to the Consumer Duty which entered into force on 31 July. If they are unable to do so, the FCA will take action. Firms will also need to step up their communications with their customers about their options and measure the effectiveness of their communications campaigns. Together with the Information Commissioner’s Office, the FCA recently clarified how savings providers could inform their customers about the best available rates, even where they had opted out of marketing.

Mills acknowledged that firms are making progress but warned that they will be required to prove they are offering fair value to customers. “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.”

Consumers encourages to find better deals

Competition is delivering better access rates for consumers who shop around, but many longstanding easy access customers are penalized according to the Review.

As consumers continue to face financial pressures due to the increase in the cost of living, it is critically important that customers can benefit from competitive interest rates to protect the value of their savings and that customers receive fair value from firms as required by the Consumer Duty.   

“We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available”, said Mills.

FCA cash savings action plan

The FCA will:  

1. require firms offering the lowest rates to provide their fair value assessments under the Consumer Duty by August 31, 2023 and take robust action by the end of 2023 against those who cannot demonstrate fair value;
2. review the timing of firms’ savings rate changes each time there is a base rate change; 
3. publish an analysis every six months of firms’ easy access savings rates, listing distribution from best to worst;   
4. analyse the difference between on-sale and off-sale products, challenging firms to explain how large differences offer fair value and considering further action if this gap does not continue to close; 
5. review firms’ performance on cash ISA to cash ISA switching;
6. conduct further analysis into the contribution of cash savings to firms’ profitability;
7. review the effectiveness of firms’ engagement with customers by the end of March 2024 and take action if firms have not effectively delivered the outcomes the FCA has set out;  
8. work with others, including the Money and Pensions Service, to identify what more can be done to support consumers to save regularly, strengthening their financial resilience. 

The FCA expects firms to:  

9. from 31 July, use their fair value assessments of on-sale savings products to assure themselves and the FCA, where needed, that these represent fair value for customers;
10. accelerate their fair value assessments for off-sale accounts ahead of the July 2024 Consumer Duty deadline for off-sale accounts; 
11. take action to prompt their customers in lower-paying savings accounts or non-interest-bearing accounts to consider alternatives;
12. closely monitor the effectiveness of customer communications, with larger firms providing the FCA with an evaluation by end 2023 and any follow up action they are taking; 
13. support consumer financial resilience by encouraging customers to start saving and/or search for higher rates, with the largest firms committing to support a targeted firm-by-firm communications campaign;  
14. consider how they can support their customers to access the free advice available from MoneyHelper.

Switching accounts

More consumers are switching personal cash accounts and moving funds out of non-interest-bearing accounts. The largest savings providers have also voluntarily committed to increase the efficiency of cash ISA to cash ISA switching, explore the potential for Open Banking to make savings work harder for consumers and work with the FCA to develop a savings dashboard which gauges consumer activity in the savings market.  

Savers are also moving money into fixed-term deposit accounts. Since the start of 2023, there has been a reduction of £52 billion ($66.9 billion) (approximately 4% of total deposits) held in easy access accounts and an increase of £38 billion ($48.9 billion) (approximately 3% of total deposits) held in fixed-term or notice accounts across 9 of the largest firms.

FCA strategy

The measures outlined in the Review support the FCA’s strategy to reduce and prevent serious harm, raise standards and promote competition. The FCA is continuing to monitor the market and will take further action if it doesn’t see significant progress by the end of 2023. However, the regulator will not be dictating pricing.