Are banks paying you a fair interest rate on your savings? FCA decides

The City watchdog, the Financial Conduct Authority (FCA), has stated that savers are approximately £4bn better off due to improvements in easy access rates in recent months. However, it continues to pressure banks to offer more value.

The FCA revealed that the average interest paid on easy access savings accounts rose to 2.11 per cent in June 2024, up from 1.66 per cent in July 2023, shortly after it published a review. “We estimate savers are £4bn a year better off from higher interest rates as a result.”

Despite this, the regulator found room for improvement in how banks assess the value offered by their savings products. “We expect firms to improve these assessments, having considered our feedback, and will take appropriate action where this is not the case,” it added.

Last year, the regulator introduced a new consumer duty, requiring financial firms to put consumers at the heart of their operations, including when designing products and communicating with customers. In July last year, the FCA also unveiled a 14-point action plan to ensure banks and building societies pass on interest rate rises to savers appropriately, communicate more effectively with customers, and offer them better savings rate deals, as reported by City AM.

The FCA noted last July that while interest rates on savings accounts had been rising, this had been happening more slowly for easy access accounts.

The Financial Conduct Authority (FCA) has been working with the nine largest firms to ensure they provide fair value to easy access savings customers. The regulator’s latest analysis shows that as the Bank of England base rate increased, banks were benefiting and increasingly passing these benefits onto savers.

Improvements have been seen in both the rates available to savers and the volume and timing of firms’ communications to savings customers. In August, there were 174 instant access/no notice accounts offering over four per cent interest, while the biggest firms continued to pay below average for easy access products.

The FCA stated that switching is straightforward, with 89 per cent of Isa switches happening within seven days. Some savers may find higher rates by locking their money away for a fixed time period, although it’s also important to have easily accessible savings for emergencies.

As the base rate has started to fall, this has affected the interest rates offered. The FCA will continue to closely monitor future savings rate changes.

On its website, the regulator noted: “The base rate fell in August 2024 and market expectations anticipate further reductions over the coming year.”

It added: “We recognise firms must balance their lending and savings pricing in line with their business model.”