FCA update on cash savings - December 2023

In July we published a review of the cash savings market[1], setting out an action plan to ensure that banks and building societies are:

• passing on interest rate rises to savers appropriately
• communicating with customers much more effectively
• offering better savings rate deals to customers

We committed to monitoring relevant firm and market statistics, linked to the outcomes we want to see on cash savings. This update sets out how the market has developed since then, as well as where firms need to continue to make progress towards the consumer outcomes we expect. We expect to see continued improvements from firms.

Improved savings rates

Since the publication of the cash savings market review, we have seen progress in the speed and size of interest rate changes for savers and improvements in cash ISA transfer performance across the market.

The average rate paid on easy access deposits in October 2023 was 1.99%. This compares to an average rate of 1.66% in July 2023 (prior to the publication of our review) and 0.89% in January 2023. The equivalent for fixed-term accounts (which guarantee a rate for a specified period with restricted withdrawals) and notice accounts (which have a specified notice period for restricted withdrawals with a guaranteed rate) was 2.94% in July 23 rising to 3.52% in October 2023. There are rates much higher than this available, including many accounts that currently pay 5% or higher (for both easy access and fixed term deposits). As of 04 December 2023, there were 311 Instant / No Notice accounts available paying over 3%, 173 over 4% and 37 over 5%.

The base rate has risen by 0.25 percentage points since July, meaning firms have, on average, increased rates by more than the value of the August base rate rise across all types of account. This positively suggests some greater responsiveness from firms to the most recent base rate rise and greater competition in the market, although we recognise that some of this increase may be a delayed response from previous rises.

We have continued to see savers moving deposits out of easy access accounts and into higher paying fixed-term and notice accounts. From July 2023 to October 2023, both the volume of deposits held in bank and building society non-interest-bearing accounts and easy access accounts reduced by £11bn. Deposits held in fixed-term and notice accounts increased by £17bn. This continues an earlier trend. Between January 2023 and October 2023 deposits held in easy access accounts have reduced by £86bn, and deposits held in fixed-term and notice accounts have increased by £57bn.   

Next steps

We have observed some improvements in the savings market and our work is ongoing.

• We have seen positive progress in firms' responsiveness to the most recent base rate change for some of the lowest paying products available on the market. However, we are continuing to identify and challenge those firms that appear to be taking too long to react.
   
• We will continue to monitor firms’ approaches to providing fair value for on-sale and off-sale savings products.
   
• Following the introduction of the Consumer Duty, we requested 9 firms to provide us with their fair value assessments (FVAs) for their lowest paying (on-sale) easy access savings accounts. Our review of these FVAs has raised important questions about how firms assess value. We will work closely with firms over the next few months to ensure their assessments are fit for purpose. We remain committed to taking robust action against firms who cannot demonstrate fair value.
   
• Many off-sale products offer some of the lowest rates available on the market and we expect firms to accelerate their assessments, applying the lessons learned from our review of on-sale products, to be able to demonstrate fair value when the Consumer Duty applies to off-sale products in July 2024.
   
• Where customers want to switch to better value products, it is important they are able to do so easily and quickly.  We have seen improvements in the Big 9 (Lloyds Banking Group, HSBC, NatWest Group, Santander UK, Barclays, Nationwide Building Society, TSB Bank, Virgin Money UK, The Co-operative Bank) cash ISA transfer performance since publishing our review in July. We have been challenging firms across the market that are not consistently meeting the voluntary industry agreement of completing a minimum of 85% of cash ISA to cash ISA transfer requests within 7 working days.  We will continue to closely monitor this, and industry’s progress against the new target of 90% of cash ISAs being completed within 7 working days for the largest banks and building society. 
   
• We are continuing our analysis based on data from a sample of firms to understand the contribution that cash savings products make to firms’ profitability, and how this has changed since the UK base rate started rising.
   
• In July 2023 we published a joint letter[2] with the Information Commissioner’s Office, confirming that data protection regulations do not prevent firms from informing customers about better rates.  We have subsequently requested the largest firms to provide their customer engagement plans, setting out how they are prompting customers in low paying savings accounts to consider alternatives.  We are encouraged that most firms appear to have increased their communications to these customers and we will continue to review the effectiveness of firms’ plans.
   
• We will also continue to progress other elements of the 14-point action plan. We are engaging with stakeholders on how their work contributes to the outcomes we are seeking, including the Money and Pensions Service (MaPS) on their work to support consumers to save regularly, strengthening their financial resilience, and with industry on its voluntary commitments on Open Savings and a savings dashboard. 

Data update

Timing of firms’ savings rate changes in response to base rate changes

We have reviewed the time the Big 9 have taken to make changes to their savings product rates in response to recent base rate changes. We used on-sale (products which are currently on sale and available to customers to open a new account) savings rate data sourced from Moneyfacts[3] to support this.

There have been 13 base rate rises since the beginning of 2022 – this table shows the average time taken to increase the rates, although there is significant variation between firms.

Differences between on-sale and off-sale products

We have reviewed the rates provided on a sample of the Big 9’s off-sale easy access products (where these appear to have equivalent features to currently available on-sale products). The situation is very similar to July, where three firms have shown limited progress in aligning rates between on-sale and off-sale products:

Cash ISA to cash ISA switching

A voluntary industry agreement sets a target for firms to complete a minimum of 85% of cash ISA to cash ISA transfer requests within 7 working days. The Big 9 committed to increase this target to 90%. 

The table below shows collective performance across the Big 9.

Source: UK Finance

The performance figures we cite have been calculated based upon data submitted to the FCA by UK Finance. UK Finance collect firm-level data on cash ISA to cash ISA transfer performance. However, as some of the data has been manually submitted from firms, UK Finance cannot guarantee the completeness or accuracy of the data shared.

Analysis of on-sale and off-sale easy access savings rates

The tables below set out some of the higher and lower paying easy access products on the market. We consider easy access savings products to be those accounts where the whole balance can be withdrawn immediately without prior notice or penalty, and where withdrawal restrictions will not impact upon the rate paid. 

The tables rank products based on the interest rate paid on a £1 balance at a given date. This data shows the range of products available – including many paying in excess of 5%. In practice, many of the products listed will offer different features or be structured to meet varied customer needs. It is important to note that the tables do not represent the full product proposition, simply the interest rate paid.

We have set out below:

• Table 1: Higher rate on-sale easy access products (ranked on the AER paid on a £1 balance, rates as at 4/12/2023)
• Table 2: Lower rate on-sale easy access products (ranked on the AER paid on a £1 balance, rates as at 4/12/2023)
• Table 3: Lower rate off-sale easy access products (ranked on the AER paid on a £1 balance, rates as at 1/12/2023)

Download the tables (XLSX)[4]

We have produced the tables using data that has been sourced from Moneyfacts[5]. The tables show the AER (%) paid on each product as of 04 December 2023 (on-sale) and 01 December 2023 (off-sale). AER is the Annual Equivalent Rate and reflects how much interest the savings product will pay over the year, taking into account any compounding interest, bonuses, and charges.

As we are publishing rates available on the market at a set point in time, the tables will not update as rates change. However, consumers can access a range of up-to-date information on the rates available from a variety of independent sources to best suit their needs. Some of these are outlined on the government sponsored MoneyHelper[6] website.

Please note the following:

• Products are ranked in the tables based on the AER paid at a £1 balance. However, we recognise that some products offer different features in addition to the AER and some firms pay materially higher rates at higher balance thresholds. These additional rates are shown in the tables for transparency.
   
• Some products may cap the level of deposits which receive the advertised rate.
   
• Products where a withdrawal limit can apply and impact the rate paid have been excluded.
   
• The following account types have been excluded due to conditions that limit the capability of some consumers to access and operate the product: Regular Savings accounts; Children’s accounts; Affinity accounts; Additional Permitted Subscription ISAs; and Lifetime ISAs.
   
• Some products may have a temporary introductory or bonus rate (included in the AERs shown) and may revert to a different product and rate after a specified period of time.
   
• Some products shown may require the consumer to hold a current account at the provider to open and access the account.
   
• Some of the brands shown may not directly accept deposits and may be acting as a deposit aggregator or intermediary.
   
• Only one product is listed where a firm has multiple products paying the same AER.
   
• AERs for off-sale products are accurate at the time Moneyfacts sourced data on the product during the preceding month. Brands may have changed the rate paid after the data had been sourced.
   
• Some of the on-sale products shown may no longer be available to new customers at the time of publishing.
   
• Some products may only be available to online customers.