On 18 September 2024, the FCA issued an update on progress in the cash savings market since its previous update in December 2023. The update in December 2023 followed the publication of the FCA’s review in July 2023 which set out a 14-point action plan.

Specifically, the update focuses on the 8 FCA-specific actions set out in the plan which should be helpful for firms which offer cash savings products and highlights areas where the regulator expects to see further improvements.

Fair Value Assessments (action 1)

The FCA sets out its findings under the following headings:

  • Assessment of value. Among other things the FCA notes that the better fair value assessments (FVAs) it reviewed were evidence-based reviews of financial and other benefits provided to customers by a savings account product. However, it also found that many FVAs were not sufficiently testing and tended to seek to validate previous pricing decisions. Many FVAs lacked appropriate data and analysis to support the conclusions.
  • Benchmarking. In better examples the FCA saw, firms compared accounts against easy access accounts across the market, including those offering market leading rates, and other accounts offered by the firm. The FCA found that some FVAs did not compare rates at all, or only chose to benchmark against a lower peer group, avoiding comparison with market leaders. The FCA warns that if a firm chooses to benchmark its accounts against only low paying accounts, or a subset of competitors, this is unlikely to represent effective benchmarking.
  • Differential outcomes. The better FVAs the FCA reviewed identified core customer groups within accounts’ target markets, for example customers starting to save, low balance/high transaction customers and customers who maintain high balances, and considered the value received by each customer cohort. The best FVAs also set out actions the firm will take to improve outcomes for those customer groups who were receiving lesser outcomes.
  • Customers with characteristics of vulnerability. The FCA reminds firms that the Consumer Duty requires them to pay particular attention to the needs of customers with characteristics of vulnerability. The regulator expects firms to apply the Consumer Duty alongside existing guidance and further reminds firms that Finalised Guidance 21/1 sets out its expectations. The better FVAs the FCA reviewed proactively considered what characteristics of vulnerability easy access savings customers may have (for example, customers with limited digital capability, poor financial resilience or in poor health and whether these customers were receiving fair value.
  • Contextual factors. In those FVAs that included an assessment of costs, the FCA found the better FVAs demonstrated a clear analysis of the relationship between the interest rate offered to customers and the relevant costs to the firm of providing the product.
  • Taking appropriate action. The best FVAs the FCA reviewed set out the steps the firm was taking to mitigate harm, which included increasing interest rates and improving customer communications. Other less developed FVAs acknowledged poor outcomes but did not set out appropriate actions
  • Data, governance, and outcomes monitoring. The FCA reminds firms that their FVAs should contain appropriate data and metrics to identify and track outcomes for different groups of customers. Where firms are still refining their approach, the FCA states that they should consider and identify proposals to develop their capabilities with clear timelines as well as actions on how they will identify and mitigate foreseeable harm in the meantime.

Cash savings practices where the FCA has observed greater risk of not meeting Consumer Duty standards

The FCA discusses the following practices which may be acceptable but tend to pose greater risk of not delivering good customer outcomes:

  • Creating multiple tranches of a savings product which offer the same terms and conditions – distinguished only by the use of distinct issue numbers – to pay higher interest rates to new customers and not to existing customers of the same product.
  • Using annually renewable bonus rates on savings products.
  • Using regressive interest rate tiering to discourage customers from maintaining large balances in easy access savings accounts.

Data update (actions 2 – 5)

The FCA has set out tables which show the improvement in the average interest rate paid on easy access and fixed-term and notice deposits between the publication of our July 2023 report and end June 2024.

Analysis of on-sale and off-sale easy access savings rates (action 3)

The FCA states that it has concluded this action (publishing an analysis every 6 months of firms’ open and closed easy access savings rates, listing distribution from best to worst) as it is not an effective use of resources given widely, freely available comparison websites and best buy tables. The FCA does not intend to publish this data again.

Differences between on-sale and off-sale products (action 4)

The FCA sets out its analysis of easy access products. The FCA also reminds firms that from July 2024, the Consumer Duty applied to both open and closed products, and it expects any differential pricing between open and closed products to be justified by a clear rationale in the relevant FVAs.

Cash ISA to cash ISA switching (action 5)

The FCA sets out a table showing the proportion of cash ISA transfers completed within 7 working days.

Profitability analysis (action 6)

The FCA has published its further analysis into the contribution of cash savings to firms’ profitability.

Overall, the FCA found:

  • Whilst some firms experienced some benefits to their profitability as base rates rose, these benefits seemed to be increasingly passed through to the consumer.
  • Improved overall financial performance (net interest margins) between December 2021, when the base rate started increasing, to mid-2023, with a rising contribution from savings.
  • Firms’ savings products saw faster rises in income than interest expenses for all types of account.
  • Easy access accounts saw the highest net interest margins (NIMs) compared with term accounts.
  • There were signs in the analysis that savings NIMs peaked and early signs of decline as the mix of products shifted from easy access and limited access accounts to term accounts.

Review of customer communications (action 7)

The FCA is encouraged to see that firms have taken steps to proactively engage and prompt savings customers to secure a better rate. Some firms used specific targeted communications to small groups of customers while other firms communicated repeatedly in large volumes throughout the year.  Some communications reviewed did not equip customers to make effective, timely and properly informed decisions. These communications often did not explain the rate a customer was receiving and the potential benefits of switching in a way that was likely to be understood.  

In addition, the FCA’s review found that communications often:  

  • Had overly passive messaging, with vague calls to action that may not encourage a response from customers.
  • Were overloaded with generic information. Communications often included detailed information about all account options and tariffs, rather than signposting upfront on where customers could go for more details on switching.
  • Used jargon or terms without explanation that could cause confusion.

Financial resilience (action 8)

The FCA welcomes the Money and Pensions Service’s (MaPS) Savings Charter. This forms part of the Nation of Savers pillar of the UK strategy for financial wellbeing that MaPS has a statutory duty to coordinate.