This week the Financial Conduct Authority (FCA) announced a package of measures to improve competition in the savings market.
The proposals include clearer information on interest rates, reminders when promotional rates come to an end and making it easier and quicker to switch accounts.
Whilst any move to try to get people earning a better return on their nest egg is welcome, I can’t help feeling that the proverbial horse has long since bolted.
The reality is that the savings market had the life squeezed out of it when the Funding for Lending Scheme (FLS) was introduced in July 2012 and it’s never recovered.
The FLS was the conduit for the government to provide ultra-low cost funding for banks in a bid to increase lending to mortgage customers and small businesses and kick start the wider economy.
While it may have been a great move for borrowers, it was savers that bore the brunt of the pain with their income from savings accounts severely reduced.
The FCA talks about speeding up processes but I’m not convinced that easier and faster switching is the answer- we’ve already seen from the current account switching service figures, it’s not about how quickly you can move your custom from one provider to another.
Another factor that makes people lethargic when it comes to finding a better savings rate is the level of reward on offer for taking the time and trouble to transfer their funds to a new account.
Many instant access savings accounts will have relatively small balances and these people particularly will question whether it’s worth the effort.
For example if someone with £1,000 in an easy access account paying 0.25% finds a no strings, no introductory bonus gimmick, FSCS covered, best buy account paying 1.40%, they will earn a mere £11.50 per year extra before tax.
When you see an increasing number of current account providers offering £100 golden hellos and still struggling to attract new business then it’s highly unlikely that savers are going to jump ship for a fraction of that reward.
The government has kept rates low as part of its strategy to rebuild the economy and we now have some of the lowest mortgage and personal loan rates on record so it’s no surprise that margins have been squeezed and easy access savings rates are much lower as a result.
With a number of current accounts paying between 3% and 5% on credit balances savvy people will be using these accounts as a vehicle for their ‘rainy day’ or emergency savings.
Naming and shaming via the new FCA ‘sunlight remedy’ tables will show which banks and building societies rank worst amongst a pretty poor bunch, but even if (and it’s a big if), the information is seen by those who have savings paying miserly returns I don’t expect to see a step change and people switching in large volumes.
With savings interest returns so low for so long now, it’s no wonder the big consumer Peer to Peer players like Zopa and Ratesetter are both currently pulling in between £40 million and £50 million of new money every month, particularly when RateSetter was this week paying 3.3% on its monthly access account.
Base rate slumped to its current record low level back March 2009 and until it awakes from its slumber then little will change in the UK savings market.
There are increasing signs that rates will pick up again in the medium term but experts predict that’s still 12 months or so away, however with the Federal Reserve in the USA predicted to raise interest rates when it meets next week, it could be a move that eventually triggers a positive change, albeit very gradual, on this side of the pond.