Context

A consumer’s ability to switch easily between savings provides can help drive competition in the cash savings market. Many consumers, however, are not only unaware of what interest rates are being paid on their existing savings account but also do not realise they could switch accounts and receive better rates at their current provider or elsewhere. These low levels of switching accounts suggest the market is not working well for consumers.

The Financial Conduct Authority (FCA) aims to make the markets work well for both businesses and individuals, with one of their major responsible being the regulation of cash savings products, including: easy access accounts, fixed term bonds, cash Individual Savings Accounts (ISAs) with no term, fixed term cash ISAs, notice accounts, children's accounts and regular savings accounts.

To understand how to promote more effective competition within the cash saving market, the FCA reviewed how well the market is working for consumers and what could be done to help consumers better understand their options and make better choices for their investment.

The study

This study provides analysis on FCA’s cash saving market study. It specifically focuses on interest-bearing cash savings accounts.

• Two information requests in January and July 2014 from a sample of 21 provides of cash saving products, including National Savings and Investments, six ‘large providers, seven ‘small and medium building societies’ and seven ‘small and medium banks’
• Views from stakeholders, and included meetings with firms, trade associations and consumer groups
• Two qualitative consumer surveys, including an online survey with 3,000 adults and a small-scale telephone survey with 260 respondents where all respondents were older than 55 years of age
• A randomised control trial involving over 20,000 savings account customers to investigate switching behaviour
• International comparison of the UK’s cash savings market with Germany, the USA, Australia and the Netherlands.

Key findings

• 93% of all adults have a cash savings account. However, competition is not working effectively for many consumers.
• In 2013, around £160bn in easy access account earned equal to or lower than the Bank of England base interest rate of 0.5%.
• Currently 350 easy access products are available and over 1,000 are no longer on sale but still in use.
• 80% of easy access accounts have not been switched in the last three years, and around a third of them were opened more than five years ago. These older accounts pay lower interest rates than accounts opened more recently.
• 69% of respondents did not know or could not estimate how much interest they had earned in the last year on their savings account with the highest balance. Across those who could or did guess what their interest rates were, respondents said they knew the exact rate for only 47% of accounts while guessing the rate on 50% of accounts.
• 63% of respondents who have an easy access account as their largest savings mechanism did not know whether their existing provider offered the same saving product with a different interest rate.
• Consumers are often put off switching between savings accounts because they expect it to be a lot of hassle with little gain at the end.
• Consumers’ desire for convenience of access to their accounts drives them to use the same provider for their savings account and personal current account. Therefore, the four largest personal current account providers offer lower interest rates than ‘challenger’ firms.
• When choosing a new product, consumers are most interested in:
• interest rates
  • other product features (e.g. terms around how often they can access the funds)
  • providers’ service provision as a whole (e.g. availability of online banking tools, customer service etc.)
  • existing and past relationship with the provider (e.g. does the consumer currently have another bank account with them)
  • perceptions of the providers’ brand.
• Bonus rate (or ‘teaser rates’) work reasonable well as a switching incentive as for easy access accounts and easy access Cash ISAs with these incentives, over half of balances are moved out of the account 12 months after the bonus rate expires and over three quarters after 24 months.

• Consumers should be given clear, targeted and appropriately timed information so they can easily and quickly compare the interest rates on their savings accounts with other options
• The switching process should be made as easy as possible to encourage consumers to move their money between accounts, either with the same or different provider
• If deemed safe, create a way for consumers to view and manage accounts with different providers in one place
• Providers should be required to be more transparent about reducing interest rates on savings accounts, for example by requiring providers to disclose key information about products, including those no longer on-sale in prominent places online and in the branch.

Points to consider

• This is a comprehensive study of the UK cash savings market. It highlights consumer savings and switching behaviours during an interesting time when interest rates have been falling and significantly reduced for over five years
• As part of this report, the FCA was requesting feedback and comments on their recommendations and proposed remedies. Therefore, some of their recommendations may have since changed or acted on.

Full report

Cash savings market study report: Final findings - full report