FCA cracks down on big banks and their slowness at passing on base rate rises to easy-access accounts

The Financial Conduct Authority has set out a 14-point action plan to ensure banks and building societies are being fair when passing on base rate rises to savers.

It comes as the financial regulator found interest rates on easy-access accounts have been rising more slowly than other types of accounts.

Major lenders have a particularly bad track-record on easy-access savings accounts.

Nine of the biggest savings providers only passed on 28 per cent of the base rate rise to their easy-access accounts between January 2022 to May 2023, the FCA says.

Stop hammering savers: The FCA has set out an action plan to ensure banks and building societies are passing on interest rate rises to savers

Notice and fixed term deposits have seen greater pass through of rate rises, with these nine firms passing through 51 per cent over the same period.

The FCA has also found significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.

MPs have been campaigning for banks to increase the interest rates banks pay on customers’ savings.

Firms offering the lowest savings rates will be required to justify how those rates offer fair value, by the end of August under the Consumer Duty which comes into force today.

If they are unable to do this, the FCA will take action. Firms will also need to step up their communications with customers about their options.

Larger banks have been too slow when it comes to passing on rate rises to customers. 

James Blower says: ‘Generally the larger banks have been very slow to pass on rate rises, much slower than they have to their mortgage customers, and these still lag the best buys by some distance.

‘There’s high street banks still paying rates less than 1.5 per cent despite the best buy being 4.6 per cent and base rate at 5 per cent. With many of the challenger banks and new entrants, they are often moving before the base rate rises.

‘We’ve seen rates rise steadily this past fortnight as providers move ahead of an expected increase to 5.25 per cent on Thursday.’

Fair value? Some of the big banks continue to pay 1 per cent or less on standard easy-access accounts

Banks have also been slowing rate rises on easy-access because more people have them.

Blower says: ‘The big banks, who have the most easy-access deposits, know they can keep rates low and that savers won’t switch or will take a long time to do so. 

‘They play on this to maximise their profits. 

‘Savers need to take action and switch otherwise this won’t change.’

Sheldon Mills, executive director of consumers and competition at the FCA, said: ‘We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates.

‘We welcome the progress that has been made so far but this needs to speed up. 

‘We will be using the Consumer Duty to ensure this is the case – with firms required to prove to us that they are offering their customers fair value.

‘We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available.’

As savers continue to face financial pressures due to the increase in the cost of living, it is more important than ever that they can benefit from competitive interest rates to protect the value of their savings.

This post first appeared on Dailymail.co.uk