Investigation launched into UK savings market
City regulator the Financial Conduct Authority (FCA) is to launch an investigation into the £1 trillion savings account market, focusing on "teaser rates".
Teaser rates are the introductory rates offered to new customers that tend to have a short life before customers are bumped onto less favourable rates.
The cash savings market study will look at whether competition is working in the best interests of consumers as well as how often consumers switch savings accounts.
The regulator said it is "keen to assess" what it can do to ensure firms offer consumers "the best returns possible and information that meets their needs".
Martin Wheatley, chief executive of the FCA, said: "We will be undertaking a programme of work and research that will enable us to have a better understanding of how the markets are working and the dynamics that drive both them and the decisions that consumers make.
"In looking at cash savings, we will examine an area that affects most people and see if there is action we need to take. This is exactly the sort of area I want the FCA to be operating in.
"We know that switching rates are low for financial services products and savings accounts are no exception. Even when people do switch their accounts, they are twice as likely to go with their existing provider than move to the offering of a competitor."
The regulator is undertaking a similar review of the annuities market and the impact for consumers if they do not shop around for the best rate, which is due to conclude in early-2014.
David Crawford, head of savings at RBS and NatWest, welcomed the announcement: "At RBS and NatWest we're focused on making saving as easy as possible for our customers. A key part of this is making sure our accounts are accessible and our pricing is always clear and fair for new and existing customers - we don't do introductory bonus offers, as standard".
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.