Banks and building societies failing to pass on the Bank of England Base Rate rises to savers will face “robust action” from the FCA if they don’t review or justify their deals by the end of the month.
The Financial Conduct Authority (FCA) revealed nine of the UK’s biggest savings providers only passed through 28 percent of rate rises to easy access accounts between January and May, contrary to smaller firms, who have been offering “significantly” higher interest rates than their competitors.
Notice and fixed term deposits saw a greater pass-through of rate rises, with these nine firms passing through 51 percent over the same period, but many still remain substantially lower than the Bank of England’s current five percent Base Rate.
Firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value and if they are unable to do so, the FCA “will take action”.
The financial watchdog also requires firms to “step up” their communications with customers about their options, such as where they may be able to find better deals elsewhere.
The crackdown forms part of the watchdog’s 14-point plan to ensure the savings market remains competitive and delivers the best value to savers during the current period of high inflation eroding purchasing power.
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.
“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. We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available.”
Analysts say this could mark the end of “dismal” savings rates and could “encourage” Britons to put more away to become more financially resilient.
Alice Haine, personal finance analyst at Bestinvest, commented: “Savers may finally see an end to dismal savings rates offered by high street lenders thanks to the FCA’s decision to crack down on banks and building societies for being slow to deliver better interest rate rises to their customers.
“The Bank of England has increased interest rates 13 times since December 2021 with expectations of a 14th increase of 25 basis points this Thursday, which would take the Base Rate to 5.25 percent.”
Yet, Ms Haine added: “Some account holders still have an interest rate of one percent or less, leaving their savings to be ravaged by high inflation with larger players in the market the worst offenders.”
Ms Haine said the FCA’s action plan to tackle this issue is “vital” to ensure savers receive the best deals they can at a time when their finances are being “battered” by the double blow of high inflation and rising borrowing costs.
She added: “If banks comply with the new requirement to ensure Base Rate changes are filtered through to accounts faster, this will encourage savers to funnel more spare cash into their savings pots, in turn helping them become financially resilient in difficult economic times.”
However, Ms Haine noted that while the FCA’s action plan increases the scrutiny on high street lenders, savers “should not assume” their bank has their best interest at heart.
Instead, she said people would be “wise” to continue shopping around for the best deals on the market to find the most competitive rate they can.
“The only consolation is that the gap between the top savings rates and CPI inflation is slowly closing, so people’s savings are being eroded less quickly. Those locking in a high fixed rate now could see their pot gain in value in real terms if inflation continues to ease in the months ahead.”
