The FCA has published a Market Study: Cash savings market study: interim report.
In the interim report the FCA sets out its emerging thinking and analysis on how competition functions in relation to easy access accounts and no-term cash ISA accounts.
The interim report examines consumer behaviour, including willingness to shop around and switch savings accounts and the ease of switching, as well as supplier conduct, including firms’ pricing in relation to newer and older accounts; the relationship between the provision of cash savings products and the provision of personal current accounts; and the information firms provide to their existing and potential customers.
The interim report identifies that some aspects of the cash savings market are working well for consumers, such as:
- a large number of firms compete with each other providing competitive interest rates; and
- some customers do shop around effectively and will switch between providers to obtain the best deal for them, which is also a great driver for competition.
However, it also identifies some aspects which may not be so beneficial for consumers, such as:
- large numbers of consumers do not actively shop around for savings accounts. Although more active consumers do drive competition, which results in higher interest rates on newer accounts, this is not beneficial for those who hold the same savings account for long periods of time;
- many savers hold their savings with their personal current account (PCA) provider thus giving PCAs a higher share of the savings market. However, because of this they are able to offer lower interest rates than those offered by other providers; and
- low levels of switching by consumers and the high proportion of savings balances held by PCA providers mean that challenger banks face difficulty in developing substantial market shares in the cash savings market. This means that they have to offer higher interest rates to attract consumers and keep them but equally they are a more expensive source of funding for challengers than for larger providers.
The deadline for comments on the interim report is 8 August 2014. The FCA expects to publish a final report in late 2014.
View Market Study 14/2: Cash savings market study: interim report, 8 July 2014