UK watchdog proposes basic savings rate on older cash accounts

By Huw Jones

(Reuters) – Britain’s financial watchdog said it was proposing a basic interest rate for older cash savings accounts because the market was not working well for longstanding customers.

It is the first time the Financial Conduct Authority has proposed a fixed interest rate on cash accounts, a step it is proposing after previous measures failed to have much impact.

Nearly 90 percent of British adults have a cash savings with banks and building societies, totaling 702 billion pounds ($923.20 billion) in 2013, the watchdog said.

“The Financial Conduct Authority is concerned that the interest rates that longstanding customers receive on easy access cash savings products are generally lower than those received by customers who shop around,” the watchdog said in a statement on Wednesday.

It published a discussion paper on how to address this issue, including the option for a basic savings rate (BSR) that would apply to all easy access cash savings accounts after they have been open for a set period of time, such as a year.

The FCA’s board noted in March that the watchdog’s 2015 study and actions to improve how customers can open, manage and switch their cash accounts did not fully address problems uncovered at the time, and that more “remedies” were needed.

It set a December 2016 deadline for halving the target time for switching cash Individual Savings Accounts or ISAs to 7 days from 15 days.

Christopher Woolard, the FCA’s executive director of strategy and competition said on Wednesday that providers of savings products can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.

“While many customers have valid reasons for not shopping around, providers must still treat them fairly, while maintaining competitive rates for those who do,” Woolard said.

The FCA is now seeking feedback on the options set out in its discussion paper, which closes on the 25 October 2018.

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