Last week the regulator (FCA) announced a package of measures to improve competition in the savings market.
The proposals included 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, you can’t help feeling that the proverbial horse has long since bolted.
The FCA wants to speed up processes but 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 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.
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