Pity the savers. With interest rates at historic lows and banks loath to offer anything remotely resembling a decent return, it’s tempting to stash bundles of cash under the mattress and wait for better times.
Hardly a day goes by at Spectator Money without a press release lamenting the paltry rates on savings plans. Yesterday, for instance, came data from Moneyfacts.co.uk revealing that rate reductions in the savings market have now outweighed rate rises for nine consecutive months. And what has happened to the base rate during that time? Absolutely nothing.
In June, Moneyfacts recorded just 14 savings rate rises. But rate reductions over the same period completely outshone this figure, with the number of rate decreases standing at a staggering 117. Some deals fell by as much as 1.30 per cent.
That’s not all. According to Moneyfacts, average savings rates are the lowest on record. For example, the average five-year fixed rate bond has fallen sharply from 2.54 per cent to 2 per cent in just one year. ISAs have not been left untouched either, with the average ISA rate dropping from 1.45 per cent to 1.14 per cent over the same period.
While it’s true that savings won’t be greatly affected by inflation, this will no doubt be of little comfort to the millions of savers languishing on dreadful rates.
Now the City watchdog has joined the fray. For the second year running the Financial Conduct Authority (FCA) has published data showing the lowest interest rates offered by 32 providers of easy access cash savings accounts and easy access cash ISAs.
This is part of the FCA’s ‘sunlight remedy’. It’s not often you hear a regulator use those words. Put simply, it’s intended to shine a light on firms’ strategies towards their long-standing customers. The findings are bleak: the stats show that some savings accounts pay as little as 0.01 per cent. This means that savers with £1,000 to invest are earning just 10p a year. 10p! It’s laughable.
Among the worst savings-rates offenders named by the FCA were Danske Bank and Ulster Bank, which pay 0.01 per cent a year on cash savings, Marks & Spencer Bank which pays 0.05 per cent on a cash ISA, and Bank of Scotland, which pays 0.1 per cent on a cash ISA.
Sadly, the FCA can’t wave a magic wand and force companies to offer better returns. But it is taking action. From December 2016, banks and building societies will have to provide a ‘summary box’ on statements, giving basic information about savings rates which will make their accounts easier to compare with others.
Christopher Woolard, director of strategy and competition at the FCA, commented: ‘We said that one of our priorities this year will be focused on the treatment of long-standing customers. Our new rules, coming into force at the end of the year, will help consumers get the facts they need to make an informed decision about what to do with their savings.
‘In a well-functioning market, providers should be competing to offer the best possible deal to consumers. Our sunlight remedy data shows that some consumers could be better off by opening a different account.’
But how do you persuade people to change providers? If levels of current account switching are anything to go by, it’ll be an uphill struggle. Data out today from Bacs, which operates the system for making payments directly from one bank account to another, shows that in the last 12 months some 1.05 million people moved their current accounts. That represents a drop of 4.7 per cent on the previous 12 month period. ‘With 65 million current account holders in the UK, movement is minimal,’ said Hannah Maundrell, editor of money.co.uk.
Nevertheless, the FCA is having a go at encouraging consumers to switch to better savings accounts. It conducted a series of trials with 130,000 consumers that explored ways to do this. The remedies included digital reminders (texts and emails that flagged up interest rate changes); a switching box (provided periodically to customers with information on the potential financial gains from shopping around and switching); and a return switching form (a simple ‘tear-off’ form and pre-paid envelope enabling a customer to switch to a better paying account).
And did any of these methods work? Yes and no. The digital reminders did well, and were just as effective as letter reminders. But the switching box and the return switching form only stimulated switching within the same bank and did not increase switching to better accounts offered by other providers.
There’s more work to be done before the FCA makes a final decision on switching incentives. But don’t be surprised if you start receiving texts urging you to switch your savings.
Helen Nugent is Online Money Editor of The Spectator