FCA update on cash savings – December 2023

Further to the latest update as regards the practices of banks and building societies concerning the (low) interest rates they are paying on saving accounts despite a „high“ base rate (EventID 24273), the Financial Conduct Authority (FCA) has published another statement in this matter. In it, the FCA provides some detailed statistical data on the interest paid by supervised banks and building societies on easy access accounts and fixed-term and notice accounts, particularly since the first „intervention“ of the FCA in July this year (EventID 22488). Moreover, the FCA once more points out its expectations in this context. Each issue is briefly discussed below:
#### Interest rates on various accounts
In October 2023, the average interest rate for easy access deposits stood at 1.99% marking an increase from 1.66% in July 2023 (before the publication of the review finding in July) and a significant rise compared to 0.89% in January 2023. For fixed-term and notice accounts, the average rate was 2.94% in July 2023, climbing to 3.52% by October 2023. Notably, there were numerous accounts offering higher rates, with 311 Instant / No Notice accounts paying over 3%, 173 accounts surpassing 4%, and 37 accounts exceeding 5% of interest as of December 4, 2023. The base rate increased by 0.25 percentage points in August, and on average, firms raised rates by more than this value across all account types. There was a trend of savers shifting deposits from easy access accounts to higher-yielding fixed-term and notice accounts: between July and October 2023, deposits in non-interest-bearing and easy access accounts decreased by £11 billion, while fixed-term and notice account deposits surged by £17 billion. This trend persisted from January to October 2023, with a reduction of £86 billion in easy access account deposits and an increase of £57 billion in fixed-term and notice account deposits since the beginning of the year.
#### Key expectations of the FCA
While the FCA has seen an increased speed in transferring customers from low interest accounts to higher ones, a surge in accounts being moved altogether, and a quicker adoption of higher rates in response to increases in the base rate, the Authority has also observed some firms paying extremely low rates. This raises questions about the methodology used to determine such rates and to assess fair value for customers as mandated by the Consumer Duty. Therefore, the FCA has engaged with these firms and will closely monitor their progress as well as the progress of the entire industry to ensure better outcomes for consumers.
As far as ISA account transfers are concerned, the FCA reminds institutions of the target rate of 90% of all account transfers to be completed within 7 working days. Furthermore, the FCA notes that following the publication of the financial results of institutions, it will assess how the change in base rate and the change in interest paid to customers have affected these results. Finally, the Authority will continue on with its 14-point action plan and will not refrain from taking additional action, if so needed.
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Please note: detailed statistical data is provided in the statement. Additionally, the rates on ISAs are included in the attached xls file.