Help could be on the way for millions with money languishing in savings accounts paying pitiful rates of interest, it emerged this week.
The main City watchdog concluded this week that some aspects of the UK's pounds 1tn savings account market "are not working well" for consumers. And the biggest losers appear to be loyal bank and building society customers who took out their account several years ago and have stuck with it. The Financial Conduct Authority (FCA) found such people typically earned less than half the amount of interest being paid to newer savers.
It discovered that at the end of 2013 the average interest rate on instant access and no-notice accounts opened within the previous two years was around 0.8%. The equivalent rate on the same types of accounts opened more than five years ago was under 0.3%.
A quick whizz around the internet by Guardian Money established that there are long-standing accounts still open for business paying a lot less than that. For instance, if you have money in HSBC's Flexible Saver instant access account, did you know that it now pays just 0.05% gross interest? A balance of pounds 1,000 would earn you the grand total of 40p after tax. HSBC Advance customers are eligible for a "preferential rate". . . of 0.1% gross. In 2007 this account paid between 3.2% and 4%, depending on how much was stashed away. Another low payer is the Co-operative Bank's Smart Saver instant access account, where the rate is 0.25% gross, 0.2% net.
Plummeting savings rates have been a huge problem for millions of people. The latest Bank of England data shows that the average instant access account rate that people have received on their cash has fallen from 3%-plus in autumn 2008 to 0.73% at the end of May. Meanwhile, Moneyfacts says the average cash Isa rate has plunged from 4.95% in July 2008 to 1.58% today.
Savers are, of course, free to shop around, but the FCA said that while some do take their money elsewhere in response to rates being cut, "a significant proportion" of people don't.
The good news is that in response to what it has found, the regulator said it would consider whether to "intervene" in the market "to improve the interest rates paid to consumers with older accounts". Any move is likely to be welcomed by consumers desperate for some respite from rock-bottom rates, which have left most facing a struggle to protect the value of their money from being eroded by inflation.
Some other interesting titbits were also uncovered by the watchdog.
* The big high-street banks that dominate the current account market are able to attract a large chunk of the UK's savings cash despite typically offering much lower rates than smaller players. The average rate offered by the leading current account providers, on instant access/no-notice savings accounts opened in the last two years, was around 0.5%, less than half the typical 1.2% rate offered by other institutions. Are the big banks taking advantage of the fact that many of us prefer to manage most, or all, of our accounts through a single branch or online banking service?
* If you are the sort of person who doesn't regularly (or ever) switch their savings, and you want to take out an instant/easy access account, go for one offered by a smaller bank or building society. The FCA said the big banks pay average rates of 0.4% on such accounts taken out two to five years ago; the average rate paid by smaller players is 1.3%.
A pounds 1,000
tax on HSBC's
Flexible Saver instant access account
(c) 2014 Guardian Newspapers Limited.