Proposed FCA Changes Could Bring In An Additional £260 Million Per Year For Savers
11 Jan 2020
Approx Reading time: 3 minutes
- Recommended changes could help those maintaining cash savings accounts bring in an additional £260 Million in interest income per year.
- Banks would have to offer a fixed single rate over a 12-month period.
- UK Finance believes changes would increase borrowing rates for loans and mortgages.
Changes are being proposed by the Financial Conduct Authority in the UK which would effectively impact the rates that banks offer their consumers on easy-access cash savings accounts, enabling customers to potentially earn an additional £260 million per year in interest income. Essentially, banks would no longer be able to cut down interest rates during a 12-month period.
Although banks would still be able to give a higher rate to potential customers in a bid to attract them to open their cash savings account, however, the rate to be offered after 12 months needs to be fixed. The proposed changes would also require banks to publish this rate twice a year to the public.
The purpose of these rules is to improve transparency as well as competition in a bid to offer a better return to customers on their investment. According to Christopher Woolard, who works in the capacity of ED Strategy and Competition at the FCA, easy-access cash savings accounts are being maintained by around 40 million people in the UK, and they are not being given a good return any more.
According to Woolard, over time banking firms have been reducing the interest rates they offer on such accounts, resulting in lower profitability for consumers. Since rates are difficult to compare at this time, and consumers are not willing to make the effort, everyone is losing out a potential £260 million every year. Woolard believes the changes would make rates much clearer to understand, allowing customers to invest wherever they are generating the highest return.
Interest rates being offered by banks stand at a historically low point at this time, and these changes would force banks to increase them in order to remain competitive.
However, according to UK Finance, a bank lobby group operating in the UK, this increase in income for consumers would likely come from an increase in rates for loans and mortgages. Also, UK Finance has highlighted that changes have already been implemented by the banking sector in the UK to improve competitiveness, such as more transparency in the communication of rates as well as proper intimation before any reduction in rates.
UK Finance MD, Eric Leenders, has also pointed out that the changes being proposed by the FCA would impact the margins being maintained by banks. This margin is the distance between the rate being offered to borrowers and that being given to cash savings account holders, and it signifies the profits that the bank keeps at the end. Hence, an increase in rates given to holders of savings accounts would lead to an increase in rates offered to borrowers of loans and mortgages.