New research from the Financial Conduct Authority has highlighted the dismal rates being paid to the longest standing customers of banks and building societies.
In an attempt to educate consumers about the perils of failing to regularly review their savings, the regulator has been asking financial institutions to reveal the lowest interest rates across their ranges of instant access savings accounts and instant access cash Isas.
In the last of its three reports on the matter (you can read about the previous one here, the FCA found that some customers are earning as little as 0.01% interest on their savings, when they could be earning up to 1.4% on the best available savings rates today.
The FCA research revealed that amongst firms offering easy access accounts with branch access, the worst deals ranged between 0.01% from Danske Bank and Ulster Bank to a more respectable 1.15% from ICICI Bank UK.
For accounts that had since been closed to new business, the worst deals ranged from 0.01% from Danske Bank and Ulster Bank again to 0.65% with Metro Bank.
Where branch access was available the worst rates for open cash Isa accounts ranged from 0.05% from TSB to 1.1% from Marks & Spencer Bank. For closed accounts they varied between 0.05% from TSB and Marks and Spencer and a much more impressive 1.15% with Coventry Building Society.
In general, over the 18 months that the accounts have been studied, the FCA said that open accounts tend to pay more than closed accounts, highlighting the importance of not leaving savings to stagnate.
Currently, for example, Marks & Spencer is paying 0.8% on its cash Isa for new customers and TSB is paying 0.5% for savers’ first year before it drops to 0.05%.
“Consumers could be better off by choosing a different account”
In its statement the FCA says: “The information shown reveals differences in the rates firms have on offer on different accounts. While we recognise that firms offer a range of accounts and the lowest rate that a consumer could earn is only one part of a bigger picture of firms’ treatment of their consumers, it does show that some consumers could be better off by choosing a different account.”
However, Richard Theo, CEO and co-founder of online investment service Wealthify, says the FCA’s report does not go far enough. “The intention behind it is great,” he says. “Educating consumers and showing them that their money could be working harder for them is crucial.
“It’s the focus on cash savings accounts that are the problem. There is an estimated £700 billion tied up these types of accounts but with inflation and low interest rates, money in cash savings accounts is eroding over time, not growing.
He adds: “ To shore up people’s financial futures the FCA needs to focus on educating Britain on the alternatives to cash savings accounts. You no longer need £1000s and a degree in economics to invest your money in other asset classes. Simple, low-cost, accessible services exist – the FCA should shine a light on those to help consumers make properly informed decisions about their hard-earned savings and to help everyone find the most appropriate ways to make their money grow.”
For more on how to do this read How to transfer your savings to an investment Isa.