FCA may force banks to pay minimum savings rate

The Financial Conduct Authority has proposed forcing banks to pay a minimum rate of interest on cash savings to stop companies taking advantage of customers.

The regulator said it was concerned that longstanding customers generally get less on cash savings accounts than those who shop around. A basic savings rate would be a way to end the "harm caused by this price discrimination", the FCA said.

An FCA study in 2015 found competition for cash savings accounts, used by 87% of UK adults, was not working well, particularly for customers who stayed with the same bank. Measures to make switching accounts easier have had little effect.

Christopher Woolard, the FCA’s head of strategy and competition, said the FCA was concerned about the way banks were treating customers. A basic savings rate would promote competition and get savers a better rate, he said.

Woolard said: "Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers. While many customers have valid reasons for not shopping around, providers must still treat them fairly, while maintaining competitive rates for those who do."

Customers are put off switching savings accounts because they expect it to be complicated and products are not transparent, the FCA said. Big current account providers, which include Lloyds Banking Group and Royal Bank of Scotland, have a built-in advantage that lets them offer low rates, it added. Banks and other interested parties have until 25 October to respond to a discussion paper.