The financial watchdog has proposed an overhaul of cash savings products in the UK, a move it said would bump up interest payments to consumers by £260m a year.
Under the plans by the Financial Conduct Authority (FCA), banks would have to set a single easy access interest rate (SEAR) across all easy access accounts.
“Competition is not working well for many of the 40 million consumers with easy access savings accounts and we want that to change,” said Christopher Woolard, FCA executive director of strategy and competition.
The FCA is proposing that providers are given the change to offer consumers multiple introductory rates for up to 12 months, but must then choose one SEAR across all their easy access cash savings accounts, and one for their easy access cash savings ISAs.
Woolard said the measures would “prevent firms from gradually reducing interest rates over time and make them compete for all their customers”.
“We are concerned that many longstanding customers are seeing a poor outcome and we want firms to focus more on these customers,” he continued.
“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.”
The watchdog said it expects longstanding customers to benefit from the proposed changes, because banks will compete on the SEAR rate offered to consumers.
Jenny Ross, editor of consumer group Which’s money division, welcomed the FCA’s proposals.
“For too long now, savers have found themselves stuck earning paltry returns as firms have taken advantage of their long-term customers,” she said.
“Switching is complicated by firms offering a huge array of products at different rates, often with unclear pricing information, so it’s right that the regulator is intervening with the introduction of a single easy access rate.”
AJ Bell personal finance analyst Laura Suter said the proposals would bring “a dramatic change to the cash savings market”.
“Banks will also no longer be able to quietly ratchet down interest rates they pay on cash savings over time, in the hope that customers won’t notice,” said Suter.
“This means that the most vulnerable customers, who aren’t as likely to shop around, should get a better deal.”