10th January 2020

Moneyfacts comments on FCA update on its Cash Savings Market Study

The Financial Conduct Authority(FCA) published an update to its Cash Savings Market Study, showing that the savings market is still not working effectively for consumers. Under the new proposals, savings providers will be required to offer customers a single easy access rate (SEAR) 12 months after they opened the account, which should mean that savers are £260m a year in interest better off.

The latest research from Moneyfacts.co.uk reveals that the average easy access rate has dropped to its lowest point since 2018. The average gross return today is 0.59% down from 0.64% a year ago and is the lowest since September 2018 when it was 0.58%, based on a deposit of £10,000.

Several providers have made rate reductions on easy access accounts over the past year–including lucrative market-leading offers at the time–such as with Virgin Money and Marcus by Goldman Sachs.

Away from the challenger brands, even if high street banks were to introduce a SEAR, as suggested by the FCA, savers could still be better off switching elsewhere due to the gap between the interest offered, as providers can decide on their own rate. For example, based on a £10,000 deposit, Gatehouse Bank pays an expected profit rate of 1.40% on its Easy Access Account, but HSBC pays just 0.10% on its Flexible Saver (standard customers).

Rachel Springall, Finance Expert at Moneyfacts.co.uk, comments “These proposals could see a rise in the number of introductory bonuses on savings accounts for 12 months or there is even the possibility for the SEAR to impact the variety of accounts providers offer. Savings providers are also free to price this rate, so it’s hard to tell at this stage how attractive they may be.

One area that may incite competition is the proposal for all savings providers to publish the SEAR so that consumers can easily compare. Unless firms are forced to make radical changes, it will be very difficult to improve rates for savers who may not actively switch their account each year.

Consumers may have their money sitting in accounts offered by well-known banks, because of convenience and protection of their cash rather than earning interest. Loyalty should of course be rewarded, but this doesn’t seem to be the case when it comes to the easy access market.

Savers may well wish to keep their cash close to hand, and an easy access account is a worthy vehicle to keep it safe. If savers have an account linked to their current account, it’s also very convenient. All major UK lenders passed the most recent Bank of England stress tests too, so consumers will feel their cash is safe with them–even if they are not getting the best possible return on their investment.

It is clear as day to see that the once lucrative competition in top rate tables has dwindled, so there may be little incentive for savers to shop around. Providers are unlikely to offer generous interest rates right now with the current economic and political climate, so they could even be cutting rates to deter investors so that they don’t become too cash flushed.

Economic uncertainties remain in the market and if interest rates were to be cut by the Bank of England, then it is the easy access market that typically worsens the soonest as these deals pay a variable rate. If providers are getting too much demand, then they could even pull their accounts altogether.

Now is not the time for savers to be apathetic in switching deals as they could be missing out on a decent return on their nest egg, especially if their cash is with a high street bank. It is important that consumers spare some time to compare rates regularly and take their loyalty elsewhere if they are getting a raw deal.”