Banks are failing savers says FCA
Banks are getting away with paying low interest rates because many customers do not shop around for the best deal, research from the Financial Conduct Authority (FCA) has confirmed.
The regulator has been investigating the often-pitiful rates savers get on their cash and found that banks pay lower rates of interest to customers who stayed with them for years.
The FCA's interim report found that larger providers are able to attract savers, even if their rates aren't competitive and the watchdog is now seeking ways competition in the market can be improved for consumers before its final findings are published later in the year.
It wants more to be done to ensure customers are more aware about the rates they receive and to make it easier to move savings to a new provider.
However, it has stopped short of banning teaser-rates, the introductory offers banks provide to new customers at attention-grabbing bonus rates for a short period of time before plummeting to much lower rates afterwards.
Christopher Woolard, director of policy, risk and research at the FCA, said: "Our preliminary view is that while some aspects of the cash savings market are working well competition does not appear to be working in the interest of many consumers.
"In this market there is a minority of very active, very engaged consumers who regularly change provider to get the best deal. We want to look more closely at what is inhibiting the majority of consumers from getting better deals."
Andrew Hagger of Moneycomms.co.uk said it was not surprising that so people aren't bothering to shop around.
"For those with bigger balances the potential interest reward makes switching accounts a worthwhile exercise but for those with less cash tucked away, it's more down to apathy and low additional reward as opposed to a lack of competition," he said.
"Some current account providers offer a £100 carrot to switch banks and still struggle to convince people to move, so it's hardly surprising that someone with say £3,000 is going to make it a priority to find a new savings account paying an extra 0.5% to earn just £1 per month more (after 20% tax) for their time and trouble."
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.