The new Consumer Duty rules could be great news for savers
There’s a new set of rules for financial service providers. “Consumer Duty” will mean providers like banks, insurance providers and investment services have to give you support when you need it, communicate in a way you understand and offer products and services that you need and will offer you fair value.
Here’s how it might impact you, including how savings rates may change.
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What is Consumer Duty?
Consumer Duty is a new standard for financial services providers to adhere to. The gist is that they have to be helpful, timely, offer good products, give good value and help you if you need it.
One part of Consumer Duty is a new 14-point plan to ensure that banks and building societies are passing on the recent interest rate rises to their customers – this could be a great step forward for savers.
Why are there new Consumer Duty rules?
With the cost of living crisis, more and more people are missing payments on their debts or household bills.
The Financial Conduct Authority (FCA) ran a survey in 2023 and found that 54% of UK adults said that they feel more stressed as a result of the rising cost of living. It also found that only 36% of the UK adult population feel that most financial firms are honest and transparent in the way they treat them.
The FCA opted to act on the feedback to give the financial services industry an overhaul and created Consumer Duty.
What is the FCA?
The FCA is a regulator for financial services firms and markets in the UK. It supervises a number of financial services to ensure that they’re meeting good standards and following all of the rules.
This applies to savings, ISAs, pensions, direct debits, credit cards, loans and investments.
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Why the FCA is worried about savings
In a bid to tackle inflation, the Bank of England base rate has risen 13 times since December 2021 and now stands at 5% (and another hike is expected at the next meeting on 3 August 2023). While we’ve certainly seen some savings accounts rise significantly over this period, some have remained pretty low, particularly easy-access rates.
The FCA’s concern over the higher rates not being passed to consumers (that’s the likes of me and you) is one of the reasons Consumer Duty was brought about.
What’s in the FCA’s 14-point savings plan?
The plan is split into two parts: what the FCA has to do and what providers need to do.
What will the FCA do?
The FCA will require the firms currently offering the lowest rates to justify how their rates offer fair value by 31 August 2023. It will take “robust action” against providers that can’t demonstrate this. We don’t yet know what “robust action” consists of.
It will also review how quickly savings rates reflect a change in the base rate each time there’s a rate rise. It’ll publish an analysis every 6 months of the easy access rates and listing distribution from best to worse.
It’ll also work on improving providers’ communications with customers and identify how to support customers that want to save regularly.
What do savings providers have to do?
Providers will need to assure themselves and potentially the FCA that their on-sale savings products “represent fair value” for their customers. Essentially, are the rates reflective of the recent changes to the base rate?
They’ll need to prompt their customers in lower-paying savings accounts or non-interest-earning accounts to choose an alternative.
In addition, they’ll need to encourage their customers to start saving or search for higher rates.
What will happen to providers that don’t comply to Consumer Duty?
The FCA has said that it will take “robust action” against providers that don’t comply with the new rules. We don’t yet know what this will look like.
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What impact will Consumer Duty have on savings rates?
Essentially, we should expect to see a rise to easy-access savings rates in the coming weeks, if not days. We monitor these rates daily, so we’ll hopefully get a good sense of how quickly this comes into play over on our savings tables.
If you currently have savings in an easy-access account, you may receive communication in the coming weeks that suggest you look for a higher rate offered elsewhere.
At least that’s the hope. Until we actually see what happens before we can say for sure that you’ll get better rates.
How to get the best savings rates
Savings rates differ by account type – you typically see higher rates from “regular saver” accounts linked to current accounts. These will require you to deposit a set amount each month and hold a current account with the same provider.
Fixed savings accounts coming in a close second. However, you won’t be able to access your money during this time, and you won’t be able to move to a higher fixed rate if one becomes available.
Easy access accounts typically have the lowest rates but you’ll be able to dip into your savings whenever you want to.
To get the best rates, you’ll want to shop around and compare the rates offered by different providers. Our savings tables, which are updated daily, compare some of the best rates offered on the market.
How you can complain
If you’re unhappy with your provider, including if you feel that they’re not meeting the standards of Consumer Duty, then you can make a complaint through the Financial Ombudsman Service.