Britain’s financial regulator has warned banks to stop short-changing loyal customers while rewarding new accounts with special ‘teaser rates’.
The Financial Conduct Authority (FCA) has outlined proposals for banks to set a single long term interest rate for all easy access accounts to avoid what is known as the loyalty penalty.
They will still be allowed to offer one year special introductory offers, but after that they must offer a new single rate to both loyal customers and the new accounts.
Currently savers who leave their money in instant access savings accounts and easy access ISAs could receive as little as 0.1% interest while best rates for new customers could be as high as 1.4% – a difference of £130 a year on £10,000 in savings.
Figures have revealed that 70% of savers never move their money to take advantage of higher interest rates and they lose out because banks gradually reduce the interest rate over time to a point where their savings may not even keep pace with the rate of inflation.
A statement from the FCA said: “This consultation sets out proposals to make the market simpler and improve competition.
This will help consumers know if they are getting a good deal, as well as protecting those that currently receive the lowest interest rates. We want firms to focus more on how they treat their longstanding customers.
“We have found there is price discrimination in the easy access cash savings and cash ISA markets. This leads to longstanding customers suffering harm by receiving poorer outcomes than new customers.
“So we propose to require firms to:
- Introduce a Single Easy Access Rates (SEAR), which is a single interest rate set by a firm for their easy access cash savings accounts, and a further rate for their easy access cash ISAs no later than the day after the first anniversary of the opening of the account
- Publish clear data on their SEARs so that third parties such as intermediaries and media organisations can highlight the rates between products and providers more easily.
Spokesman Christopher Woolard said the proposals were designed to offer some protection to long term savers and make offers easier to compare between banks and building societies.
If the proposals are accepted banks will be required to pay their long-standing customers the same rate as new customers who have just finished their introductory offer.
Currently one provider has 82 different easy access accounts covered by a range of different interest rates.
The regulator said banks would compete on their SEAR rate as the new system would prevent them from reducing their interest rates over time.
“The new rate will also make it easier for savers to know whether they are getting a good deal after any introductory offer has expired,” added Mr Woolard
The proposals have been sent out for consultation to interested parties with responses requested by April 9th.
The FCA says once the returns have been evaluated the next step will be published in the second half of this year.