Savers are an estimated £4bn a year better off as a result of higher interest rates, according to the Financial Conduct Authority.
The regulator published an update today on its cash savings market review which it launched in July 2023.
This set out a 14-point action plan to ensure banks and building societies were passing on interest rate rises to savers appropriately, communicating with customers much more effectively and offering better savings rate deals to customers.
According to the FCA, since the publication of its review, it has seen improvements in both the rates available to savers and the volume and timing of firms’ communications to savings customers.
Savers have continued to move deposits into higher paying fixed-term and notice accounts with these balances increasing by £29bn to £274bn between July 2023 and June 2024, the update said.
Despite these improvements, the regulator’s review of fair value assessments has shown that many firms have found the assessment of value “challenging” with the largest firms generally continuing to pay below the market average for standard easy access products.
When assessing fair value, the regulator thought firms may find it appropriate to benchmark products against comparable products in the market.
The greater an account was an outlier compared to similar products, the greater the onus on a firm to assess its value more rigorously, the FCA said.
It also said it expected firms to use relevant customer data to proactively identify customer groups and monitor their outcomes to ensure consumers in all groups were receiving fair value.
According to the FCA, it did not see evidence that many firms had fully assessed the outcomes for customers with characteristics of vulnerability.
It said the “less developed” fair value assessments had inappropriately relied on customers to self-identify and declare vulnerability rather than firms proactively considering it themselves.
“We expect all firms who are unable to effectively monitor outcomes for vulnerable customers to have clear plans in place to address this shortfall, in line with the requirements of the consumer duty,” the FCA said.
The regulator said the consumer duty required firms to take appropriate action if they identified customers were not receiving fair value or that any group of customers were receiving worse outcomes than another for the same product.
“In these circumstances, the best assessments we reviewed set out the steps the firm was taking to mitigate harm, which included increasing interest rates and improving customer communications. Other less developed assessments acknowledged poor outcomes but did not set out appropriate actions,” it added.
The FCA said it recognised firms needed to balance their lending and savings pricing in line with their business model.
“We will continue to closely monitor firms’ future savings rate changes. Our 2023 review considered the speed and extent of firms’ interest rate pass through, and we will expect a clear explanation should we identify that a firm has changed its savings rates significantly more quickly and fully in response to interest rate reductions, compared to previous interest rate increases,” it said.
