The UK’s financial watchdog has warned it will crack down on lenders that fail to justify low savings rates.
The Financial Conduct Authority (FCA) said providers who fail to show how their rates represent fair value to customers could face “robust action by the end of 2023”. This could include fines.
It is part of a 14-point plan by the FCA following a month-long review into the savings market. It found many banks are not passing on interest rate rises to savers.
Smaller firms offering higher rates
The UK’s largest financial establishments, including Lloyds, NatWest, HSBC, Santander UK and Nationwide Building Society, had passed on just over a quarter of rising interest rates to the most popular easy access accounts. As for fixed savings accounts, banks passed on about 51 per cent of rate increases.
There has also been significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.
Given soaring interest rates on mortgages, credit cards and loans, low savings rates are seen by many as unfair, given booming bank profits. The regulator has said it will “conduct further analysis” into how cash savings are contributing to these profits.
Named and shamed
The FCA has already met with some of the country’s biggest lenders telling them to speed up. The regulator expects lenders to pass benefits to savers within “weeks” of a central bank interest rate rise.
Its 14-point plan will monitor how quickly banks pass on savings rates to customers and name and shame those which fail.
‘Better deals for savers’
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.”