New research has found that one in four savers is being ripped off by banks and building societies paying poor rates of interest on savings accounts.
The Financial Conduct Authority’s study has found that savers are losing out on around one billion each year in interest, due to low interest rates and the tactics employed by the UK’s banks and building societies.
The key findings of the study include:
- More than 90% of adults in the UK have a savings account, but 25% of savers, with £160 billion in savings, are receiving less than 0.5% interest each year
- Savers who have had the same account for more than five years are particularly at risk
- Only 20% of savers have switched accounts over the past three years
Banks and building societies were also criticised for keeping savers in the dark over better interest rates which might be available.
Easy access = low interest?
The study took an in-depth look at easy access savings accounts, where money can be withdrawn at any time and the interest rate is variable.
The FCA found that a massive £350 billion is held in these types of account, which have been hit over the past few years by the static Bank of England base rate and a Government initiative, known as the Funding for Lending scheme, designed to help banks lend more money to individuals and businesses.
Over a third of instant access accounts have been open for five years or more; it these which are most likely to be paying poor rates of interest; below the Bank of England’s base rate of 0.5%.
Shockingly, the report found that 51% of people with easy access savings accounts did not know the interest rate they are receiving. Furthermore only 20% of easy access accounts had been switched in the past three years.
Good news for savers
The report also contained good news for savers, as the regulator outlined new rules which should make life easier for savers.
Banks and building societies will be forced to include information on annual statements showing how the interest rate they are receiving compares to other accounts offered by the same institution and the average of the top 10 similar accounts.
Furthermore, in the future banks and building societies will be forced to notify savers of any cut in interest rates which could disadvantage them.
Christopher Woolard, Director of Strategy & Competition at the FCA, said: “Consumers receive little information about alternative products and often assume switching accounts will take a lot of effort for limited benefit. We want to see firms making simple information much easier to find.”
Despite speculation they would be banned the FCA will still allow banks and building societies to offer short term bonuses, so called teaser rates, to attract new customers.
However, the regulator said that savers should be sent reminders that their bonus rate is coming to an end, hopefully prompting people to take action to prevent money languishing in an uncompetitive account.
We’re here to help
If you are confused about your savings account or would like help finding a better interest rate we’re here to help.
Call one of our advisers today on 0115 933 8433 or complete our online enquiry form by clicking here and we can discuss ways of making your savings work harder for you.