Regulator to investigate bonus rates on savings accounts

Regulator to investigate bonus rates on savings accounts
Date of Publication: Tuesday, 10 September 2013 14:00

The City regulator is to investigate the culture of 'bonus rates' on savings accounts as it continues its review into consumer finance products.


The Financial Conduct Authority (FCA) said it was planning to investigate the market for savings accounts and would take particular interest in the effects of introductory bonus rates.


Banks and building societies often use headline ‘bonus’ rates to entice customers towards their savings accounts.


These typically last for just twelve months before falling overnight. Customers are left to transfer their savings to avoid poor returns – if they are even aware of the fall in rates.


The Impact of Bonus Rates

Which4U's 2012 chart highlighting the effect of bonus rates on interest returns. See our guide for more details.


The FCA said it was planning to correlate the culture of bonus rates with how often savers change accounts to determine whether the current system could provide a good deal for consumers.


"We will be undertaking a programme of work and research that will enable us to have a better understanding of how the markets are working and the dynamics that drive both them and the decisions that consumers make," chief executive Martin Wheatley explained.


"In looking at cash savings, we will examine an area that affects most people and see if there is action we need to take."


The regulator threatened to investigate the sector back in April, when Mr Wheatley accused banks of taking advantage of ‘customer inertia’ (read more).


"This is exactly the sort of area I want the FCA to be operating in," he continued.


"We know that switching rates are low for financial services products and savings accounts are no exception.


"Even when people do switch their accounts, they are twice as likely to go with their existing provider as move to the offering of a competitor."


Recent moves in the savings market include a new 3% ISA from Leeds Building Society, which is one of very few inflation-topping accounts on the market.


However, around 300,000 savers with National Savings & Investments are to receive a blow this week, when Direct ISA rates fall from 2.25% to 1.75% on Thursday.


Keith McDonald
Which4U Editor


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