Cash savings: FCA proposes Single Easy Access Rate to tackle price discrimination

The FCA is proposing to reform the easy access cash savings market by requiring firms to set a single interest rate known as "Single Easy Access Rate" or "SEAR" for easy access savings accounts and easy access ISAs.  The proposals target these accounts because the FCA found harm in the Cash Savings Market Study with consumers failing to switch to higher rates at the end of introductory offers. 

Banks and building societies will want to consider the potential impact of the changes, which are likely to include additional liquidity management costs and increased account opening costs from consumer switching. 

SEAR: Key features 

Aspect of policy design

Design feature

Accounts in scope

Easy access cash savings accounts and easy access cash ISAs (but foreign currency accounts are out of scope)

Savings accounts with restrictions such as fixed-term accounts are not in scope

Providers in scope

Banks and building societies (not credit unions or private banks)

Maximum length of introductory rates

12 months

Maximum number of SEARs

Two per brand – one for easy access savings accounts and one for easy access ISAs

Customer Communication

Consumers must be told in financial promotions that the SEAR applies and its current rate

 

Consumers must be told before the introductory rate expires

Increased transparency

For each brand the provider must publish on their website for easy access savings accounts and easy access cash ISAs every 6 months:

 

  • The SEAR
  • The proportion of balances on the SEAR
  • The highest rate the provider offers on an open account, including introductory offers

 Firms can set SEARs at levels of their own choosing 

  • Firms will have flexibility to offer multiple introductory rates for up to 12 months, after which they will need to choose one SEAR for their easy access cash savings accounts, and one for their easy access cash savings ISAs.
  • Firms will be able to set the SEARs at the levels they choose. The FCA thinks this will ensure a proportionate impact on firms and maintain competition in the market, while at the same time protecting longstanding customers. 

Firms must publish SEARs data every 6 months 

  • The proposals require firms to publish data every 6 months on the SEARs they offer to make them easier to compare with the rates that other firms are offering at the time of opening an account.
  • This should also help longstanding customers to see whether their existing product gives them a good interest rate as their provider will have only one rate rather than multiple rates. 

Increasing interest rate competition, tackling price discrimination 

  • The FCA thinks the SEAR will encourage switching and avoid issues associated with the loyalty penalty.
  • It also expects that firms will set their SEARs higher than the current rates offered to longstanding customers.
  • The FCA estimates that consumers will benefit by £260m from higher interest payments. 

What's next? 

The FCA is asking for feedback on its proposals by 9 April 2020.  It will follow up in the second half of 2020. If it decides to take forward the proposals, it currently thinks that it would implement these at the start of the 2021/22 tax year, providing an implementation period of at least 6 months.

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