Regulator warns UK banks over miserly savings rates for loyal customers

masonic

Brie said:

masonic said:

Great, low rates for everyone because of those who don't care enough to ditch and switch.

Not everyone can switch their accounts.  So get stuck with low rates.  In my case if my account is overdrawn I have to pay nearly 7% interest, if it's in credit I get .25%.  Switching from this to another account isn't currently an option as this is actually my mortgage.

If you're in some sort of mortgage offset account, then of course it is a whole different kettle of fish, but you benefit from not paying mortgage interest on your offset savings. It doesn't stop you from holding any savings you don't want to offset elsewhere if it makes better financial sense to do so. Such an account might pay 0% interest, but I hope that doesn't mean others with net savings must receive 0% interest too!

If you're actually getting paid 0.25% and offsetting 7% debt interest by saving each £1, then there isn't an alternative savings account available that pays 7.25%, so you should definitely stay put.

isasmurf

TheBanker said:

I'm not sure what the FCA are suggesting.

I think the practice of taking old accounts off sale and offering an identical product, with a slightly different name and higher interest rate to new customers, is unfair. If they are suggesting banning this practice, then fair enough. We might see the introduction of something similar to switcher cashback for savings accounts as a mechanism for banks to try to win new customers, if they can't offer short term 'bonus' rates.

What the FCA were proposing in 2020 before the impact of covid on the savings market stopped it was that all easy access accounts a bank holds must have the same interest rate after the first anniversary of the account. Banks would be able to compete for customers by offering multiple introductory rates for the first 12 months of the account. Effectively, it is how Tesco easy access accounts work - the same underlying rate across all accounts with a bonus for 12 months. Banks would be required to publish their single easy access rate (SEAR) to allow customers to compare with other banks. 

The FCA claimed "Most longstanding customers would benefit from higher interest rates because firms 

will compete on the SEAR" which plainly shows the FCA doesn't have a clue about the savings market. Banks will compete on the introductory rate. 

This doesn't solve the so called loyalty penalty nor does it solve where politicians and media are more focused at the moment on banks not passing on BoE interest rate increases on savings accounts. 

If the big banks - who hold most of the low rate longstanding easy access accounts - currently offer pitiful rates across their easy access accounts what makes the FCA think this would encourage them to offer a higher rate under this proposal? 

km1500

what I think.would help would be the introduction of a 'savings account switching service' a bit (or exactly) like a cash isa switching service

it's a pain having to close an account, get all.the money sent to a current account, open a new savings account, send a £1 test payment, then send the rest, then try and get through to your bank's fraud department asking why you account has been frozen, then explain that no you haven't been asked to transfer the money to a safe account, then ...

TheBanker

isasmurf said:

TheBanker said:

I'm not sure what the FCA are suggesting.

I think the practice of taking old accounts off sale and offering an identical product, with a slightly different name and higher interest rate to new customers, is unfair. If they are suggesting banning this practice, then fair enough. We might see the introduction of something similar to switcher cashback for savings accounts as a mechanism for banks to try to win new customers, if they can't offer short term 'bonus' rates.

What the FCA were proposing in 2020 before the impact of covid on the savings market stopped it was that all easy access accounts a bank holds must have the same interest rate after the first anniversary of the account. Banks would be able to compete for customers by offering multiple introductory rates for the first 12 months of the account. Effectively, it is how Tesco easy access accounts work - the same underlying rate across all accounts with a bonus for 12 months. Banks would be required to publish their single easy access rate (SEAR) to allow customers to compare with other banks. 

The FCA claimed "Most longstanding customers would benefit from higher interest rates because firms 

will compete on the SEAR" which plainly shows the FCA doesn't have a clue about the savings market. Banks will compete on the introductory rate. 

This doesn't solve the so called loyalty penalty nor does it solve where politicians and media are more focused at the moment on banks not passing on BoE interest rate increases on savings accounts. 

If the big banks - who hold most of the low rate longstanding easy access accounts - currently offer pitiful rates across their easy access accounts what makes the FCA think this would encourage them to offer a higher rate under this proposal? 

This proposal is pretty similar to what happens anyway. If you look at most banks, their old instant access accounts all pay the same low rates, with an on-sale product that has a higher rate. Obviously the decade of very low rates made it easier for the banks to reduce everything to the same level. 

In my view the problem with what the FCA were proposing (aside from the fact it wouldn't work!) is that it would actually penalise customers. For example, my account pays a higher rate of interest because I have to access it online. I cannot access it through a branch, even though the bank has a branch network. The same bank offer accounts that come with ATM cards and branch counter access, paying lower rates. The branch accounts cost more to service - they need to contribute to the cost of running the branch network, they include paper statements which cost money to print and post, the ATM card costs money to produce and when an ATM is used there are costs involved. Essentially having a standard rate will make it very difficult for banks with branch based accounts to compete in the digital space. 

The FCA's approach could lead to some unexpected decisions by banks. For example they might introduce minimum balance requirements (sorry, if you've got less than £5k we can't make a savings account profitable, so rather than pay you some interest you have to keep your money in a current account earning nothing). They could introduce fees for certain services (you want a paper statement? That will be £1 per month. You want an ATM card? OK but we'll charge you 50p every time you use it). Or they could introduce accounts with minor restrictions to take them out to the Easy Access bucket (This account is restricted access - you can't make more than 104 withdrawals per year. If you do, we'll charge a penalty of two days interest). 

Really I think this whole proposal is a solution looking for a problem. The savings market is competitive - people can switch as often as they want, choosing between whether to prioritise interest rates or convenience of access. I do think customers have to take a degree of responsibility for their own decisions and if they've got an account that doesn't work for them, it's easy enough to move it to one that does. The fact that lots of people don't perhaps suggests that most people don't see earning a few pence of extra interest as a priority. An intervention to make switching easier (like CASS did for current accounts) might be beneficial, although in reality switching a savings account is not that much of a hassle anyway.

leeloolee

TheBanker said:

I'm not sure what the FCA are suggesting.

I think the practice of taking old accounts off sale and offering an identical product, with a slightly different name and higher interest rate to new customers, is unfair. If they are suggesting banning this practice, then fair enough. We might see the introduction of something similar to switcher cashback for savings accounts as a mechanism for banks to try to win new customers, if they can't offer short term 'bonus' rates.

But there are sometimes legitimate reasons why banks will offer different rates on similar products. As an example, my savings are in an e-saver account which I can only access online. My bank offer a similar account which comes with a cash card and can be accessed through their branches. The branch based account pays a lower rate. This is not unfair; those customers have access to additional services which have a cost to provide. What would be unfair is the bank preventing them from moving to the e-saver if they were prepared to give up their ATM and branch access. 

Anyone on MSE will know that generally leaving your savings in an account at a high-street bank is not going to generate the best return. Some people still do that because they like the comfort of having branch access (although I appreciate this is becoming more difficult in some areas). Some are not bothered about earning interest and think having everything in one place makes for an easy life. Some people cannot earn interest for religious reasons so it's irrelevant to them. Some people may wish to save with a Building Society rather than a bank for ideological reasons. The point is there is a wide range of accounts on offer, and customers should choose those that best meet their needs.

One of the FCA's objectives is to promote competition, and interfering in pricing decisions doesn't do that. I think the savings market is quite competitive - but to benefit customers have to be willing to adapt and move to institutions that only exist in the digital world. These institutions can offer better rates because their costs are far lower, but the customer 'pays' for that in terms of not having branch access, not receiving paper statements etc.

Can you imagine what would happen if a regulator said shops can't charge more than 90p for a 2 pint bottle of milk? Small local shops might stop selling milk, or close down, because they can no longer profit. That would be of no benefit to the people who use those shops.

So my bank were offering an ISA to new customers with a much better interest rate than the existing one I was signed up to. I was able to upgrade, but I had to apply to do so, and this put a bad taste in my mouth, as I think it's shady. I've been dealing with serious health issues over the past while and didn't get a chance to follow what was going on with banks and account offerings. I lost out on a significant amount of interest because I didn't switch in time. I think banks should have to automatically upgrade customer accounts to the latest, better offering, without making them ring up or fill in complicated forms. 

mebu60

leeloolee said:

TheBanker said:

I'm not sure what the FCA are suggesting.

I think the practice of taking old accounts off sale and offering an identical product, with a slightly different name and higher interest rate to new customers, is unfair. If they are suggesting banning this practice, then fair enough. We might see the introduction of something similar to switcher cashback for savings accounts as a mechanism for banks to try to win new customers, if they can't offer short term 'bonus' rates.

But there are sometimes legitimate reasons why banks will offer different rates on similar products. As an example, my savings are in an e-saver account which I can only access online. My bank offer a similar account which comes with a cash card and can be accessed through their branches. The branch based account pays a lower rate. This is not unfair; those customers have access to additional services which have a cost to provide. What would be unfair is the bank preventing them from moving to the e-saver if they were prepared to give up their ATM and branch access. 

Anyone on MSE will know that generally leaving your savings in an account at a high-street bank is not going to generate the best return. Some people still do that because they like the comfort of having branch access (although I appreciate this is becoming more difficult in some areas). Some are not bothered about earning interest and think having everything in one place makes for an easy life. Some people cannot earn interest for religious reasons so it's irrelevant to them. Some people may wish to save with a Building Society rather than a bank for ideological reasons. The point is there is a wide range of accounts on offer, and customers should choose those that best meet their needs.

One of the FCA's objectives is to promote competition, and interfering in pricing decisions doesn't do that. I think the savings market is quite competitive - but to benefit customers have to be willing to adapt and move to institutions that only exist in the digital world. These institutions can offer better rates because their costs are far lower, but the customer 'pays' for that in terms of not having branch access, not receiving paper statements etc.

Can you imagine what would happen if a regulator said shops can't charge more than 90p for a 2 pint bottle of milk? Small local shops might stop selling milk, or close down, because they can no longer profit. That would be of no benefit to the people who use those shops.

So my bank were offering an ISA to new customers with a much better interest rate than the existing one I was signed up to. I was able to upgrade, but I had to apply to do so, and this put a bad taste in my mouth, as I think it's shady. I've been dealing with serious health issues over the past while and didn't get a chance to follow what was going on with banks and account offerings. I lost out on a significant amount of interest because I didn't switch in time. I think banks should have to automatically upgrade customer accounts to the latest, better offering, without making them ring up or fill in complicated forms. 

Sorry to hear about your health issues. If financial institutions were forced to upgrade legacy products automatically they would be less likely to bring out new products or they would be at lower rates than if they could launch them separately. Also, as others have said, be aware of unintended consequences such as high minimum balances being introduced or tiered rates. Savings is highly competitive now. An unpalatable fact is that a huge swathe of people are just not interested for all sorts of reasons, similarly with utilities. Another unpalatable fact is that there is no direct link between base rate and savings rates being offered but it is an easy target for politicians and the media. 

Eco_Miser

leeloolee said:

TheBanker said:

I'm not sure what the FCA are suggesting.

I think the practice of taking old accounts off sale and offering an identical product, with a slightly different name and higher interest rate to new customers, is unfair. If they are suggesting banning this practice, then fair enough. We might see the introduction of something similar to switcher cashback for savings accounts as a mechanism for banks to try to win new customers, if they can't offer short term 'bonus' rates.

But there are sometimes legitimate reasons why banks will offer different rates on similar products. As an example, my savings are in an e-saver account which I can only access online. My bank offer a similar account which comes with a cash card and can be accessed through their branches. The branch based account pays a lower rate. This is not unfair; those customers have access to additional services which have a cost to provide. What would be unfair is the bank preventing them from moving to the e-saver if they were prepared to give up their ATM and branch access. 

Anyone on MSE will know that generally leaving your savings in an account at a high-street bank is not going to generate the best return. Some people still do that because they like the comfort of having branch access (although I appreciate this is becoming more difficult in some areas). Some are not bothered about earning interest and think having everything in one place makes for an easy life. Some people cannot earn interest for religious reasons so it's irrelevant to them. Some people may wish to save with a Building Society rather than a bank for ideological reasons. The point is there is a wide range of accounts on offer, and customers should choose those that best meet their needs.

One of the FCA's objectives is to promote competition, and interfering in pricing decisions doesn't do that. I think the savings market is quite competitive - but to benefit customers have to be willing to adapt and move to institutions that only exist in the digital world. These institutions can offer better rates because their costs are far lower, but the customer 'pays' for that in terms of not having branch access, not receiving paper statements etc.

Can you imagine what would happen if a regulator said shops can't charge more than 90p for a 2 pint bottle of milk? Small local shops might stop selling milk, or close down, because they can no longer profit. That would be of no benefit to the people who use those shops.

So my bank were offering an ISA to new customers with a much better interest rate than the existing one I was signed up to. I was able to upgrade, but I had to apply to do so, and this put a bad taste in my mouth, as I think it's shady. I've been dealing with serious health issues over the past while and didn't get a chance to follow what was going on with banks and account offerings. I lost out on a significant amount of interest because I didn't switch in time. I think banks should have to automatically upgrade customer accounts to the latest, better offering, without making them ring up or fill in complicated forms. 

Do you think that banks should also automatically downgrade customer accounts to the latest, worse offering, when interest rates fall? If no, why not?

grumbler

Eco_Miser said:

leeloolee said:

TheBanker said:

I'm not sure what the FCA are suggesting.

I think the practice of taking old accounts off sale and offering an identical product, with a slightly different name and higher interest rate to new customers, is unfair. If they are suggesting banning this practice, then fair enough. We might see the introduction of something similar to switcher cashback for savings accounts as a mechanism for banks to try to win new customers, if they can't offer short term 'bonus' rates.

But there are sometimes legitimate reasons why banks will offer different rates on similar products. As an example, my savings are in an e-saver account which I can only access online. My bank offer a similar account which comes with a cash card and can be accessed through their branches. The branch based account pays a lower rate. This is not unfair; those customers have access to additional services which have a cost to provide. What would be unfair is the bank preventing them from moving to the e-saver if they were prepared to give up their ATM and branch access. 

Anyone on MSE will know that generally leaving your savings in an account at a high-street bank is not going to generate the best return. Some people still do that because they like the comfort of having branch access (although I appreciate this is becoming more difficult in some areas). Some are not bothered about earning interest and think having everything in one place makes for an easy life. Some people cannot earn interest for religious reasons so it's irrelevant to them. Some people may wish to save with a Building Society rather than a bank for ideological reasons. The point is there is a wide range of accounts on offer, and customers should choose those that best meet their needs.

One of the FCA's objectives is to promote competition, and interfering in pricing decisions doesn't do that. I think the savings market is quite competitive - but to benefit customers have to be willing to adapt and move to institutions that only exist in the digital world. These institutions can offer better rates because their costs are far lower, but the customer 'pays' for that in terms of not having branch access, not receiving paper statements etc.

Can you imagine what would happen if a regulator said shops can't charge more than 90p for a 2 pint bottle of milk? Small local shops might stop selling milk, or close down, because they can no longer profit. That would be of no benefit to the people who use those shops.

So my bank were offering an ISA to new customers with a much better interest rate than the existing one I was signed up to. I was able to upgrade, but I had to apply to do so, and this put a bad taste in my mouth, as I think it's shady. I've been dealing with serious health issues over the past while and didn't get a chance to follow what was going on with banks and account offerings. I lost out on a significant amount of interest because I didn't switch in time. I think banks should have to automatically upgrade customer accounts to the latest, better offering, without making them ring up or fill in complicated forms. 

Do you think that banks should also automatically downgrade customer accounts to the latest, worse offering, when interest rates fall? If no, why not?

Why not if it's a flexible rate account? No need to downgrade it, just reduce the rate.

mebu60

grumbler said:

Eco_Miser said:

leeloolee said:

TheBanker said:

I'm not sure what the FCA are suggesting.

I think the practice of taking old accounts off sale and offering an identical product, with a slightly different name and higher interest rate to new customers, is unfair. If they are suggesting banning this practice, then fair enough. We might see the introduction of something similar to switcher cashback for savings accounts as a mechanism for banks to try to win new customers, if they can't offer short term 'bonus' rates.

But there are sometimes legitimate reasons why banks will offer different rates on similar products. As an example, my savings are in an e-saver account which I can only access online. My bank offer a similar account which comes with a cash card and can be accessed through their branches. The branch based account pays a lower rate. This is not unfair; those customers have access to additional services which have a cost to provide. What would be unfair is the bank preventing them from moving to the e-saver if they were prepared to give up their ATM and branch access. 

Anyone on MSE will know that generally leaving your savings in an account at a high-street bank is not going to generate the best return. Some people still do that because they like the comfort of having branch access (although I appreciate this is becoming more difficult in some areas). Some are not bothered about earning interest and think having everything in one place makes for an easy life. Some people cannot earn interest for religious reasons so it's irrelevant to them. Some people may wish to save with a Building Society rather than a bank for ideological reasons. The point is there is a wide range of accounts on offer, and customers should choose those that best meet their needs.

One of the FCA's objectives is to promote competition, and interfering in pricing decisions doesn't do that. I think the savings market is quite competitive - but to benefit customers have to be willing to adapt and move to institutions that only exist in the digital world. These institutions can offer better rates because their costs are far lower, but the customer 'pays' for that in terms of not having branch access, not receiving paper statements etc.

Can you imagine what would happen if a regulator said shops can't charge more than 90p for a 2 pint bottle of milk? Small local shops might stop selling milk, or close down, because they can no longer profit. That would be of no benefit to the people who use those shops.

So my bank were offering an ISA to new customers with a much better interest rate than the existing one I was signed up to. I was able to upgrade, but I had to apply to do so, and this put a bad taste in my mouth, as I think it's shady. I've been dealing with serious health issues over the past while and didn't get a chance to follow what was going on with banks and account offerings. I lost out on a significant amount of interest because I didn't switch in time. I think banks should have to automatically upgrade customer accounts to the latest, better offering, without making them ring up or fill in complicated forms. 

Do you think that banks should also automatically downgrade customer accounts to the latest, worse offering, when interest rates fall? If no, why not?

Why not if it's a flexible rate account? No need to downgrade it, just reduce the rate.

I think the point Eco_Miser was making (or how I read it anyway) was that if banks should automatically upgrade / increase rates across all legacy offerings when bringing out a new rate then that should logically also apply in reverse and they be downgraded / decreased / reduced across the board when a new lower rate is introduced.
Many of us are currently sitting on higher EA rates that are NLA to new customers. 

Bigwheels1111

I don’t care about standard banks and their rates.
Why would anyone, search for the best rates and take them.
The only old fashioned bank I use for savings is FD, for the regular saver.
All the others are new starters, Chase,Gatehouse, Al Rayan, Atom, Ford to mention a few.