Doubt cast over savers' £260m gain under bank regulator interest rate intervention

But experts have questioned whether the new rules proposed by the Financial Conduct Authority will mean consumers would gain an extra £260m from higher interest payments a year - warning that banks would find ways to claw back any losses in other ways.

The Herald can reveal that the FCA estimate that the total one-off costs of its intervention would be £94m, with an annual ongoing cost of £35m.

Experts say the only way consumers can gain is if they shop around for the best rates and swap banks - but analysis suggests people have been historically reluctant to do so.

The reforms by the Financial Conduct Authority would still allow banks to offer introductory interest rates to bring in new customers for a year, but would then have to set a single easy access rate (SEAR) across all their savings accounts and easy-access cash Isas, ensuring loyal customers do not lose out through lower rates. The proposals also require banks to publish details every six months on the SEARs they offer which should make comparisons easier.

The FCA says that the new rules would make it easier for longstanding customers to see whether their existing account gives them a good interest rate because their bank will not have one set interest rate.

The rules, which will now go out for consultation, are meant to boost transparency and competition across the easy-access savings market, which has been accused of taking advantage of customers' unwillingness to switch.

The FCA video promoting its intervention.

Easy access accounts typically let you pay money in and withdraw it when you want without being penalised.

With over 1,700 savings accounts available in the UK and around 300 that are 'easy access', only a handful offer interest rates that beat the inflation rate which was at 1.5% year-on-year in November.

Around 40 million people hold such accounts in the UK but many longstanding customers receive low rates of interest and therefore miniscule returns for their savings.

The typical easy access account interest rate has dropped to its lowest point since 2018. The average gross return is at 0.59%, down from 0.64% a year ago and is the lowest since September 2018 when it was 0.58%, based on a deposit of £10,000, according to one analysis.

Analysis from comparison site Moneyfacts shows that the Bank of Scotland Access Saver (Standard Rate) account is among the stingiest in the UK in terms of easy access interest rates offering just 0.1%. The account stays at 0.1% for a year before turning into an instant access savings account, earning 0.2% interest.

The best interest deals were 1.4% offered by the Gatehouse Bank and 1.35% given by the Yorkshire Building Society, Chelsea Building Society, Buckinghamshire Building Society and Ford Money.

Clydesdale and RBS offer 0.2% on balances up to £25,000.

There are concerns that banks will not necessarily offer better interest rates across the board under the new regime.

New analysis this month by independent banking experts Savings Champion revealed that even though the base rate has remained level at 0.75% since August 2018, there have been over 750 rate cuts to existing savings accounts in 2019 alone... and just 137 rate increases.

Anna Bowes, co-founder of Savings Champion said that how consumers would ultimately gain remained "a bit of a headscratcher".

"If the banks decide they don't have to increase their easy access savings rate, then it hasn't worked," she said. "If they have been forced to pay higher rates of interest to older customers, does that mean they won't be as generous elsewhere?

"They are already paying rubbish rates, and if the banks are forced to do a SEAR, they will just put a low one in. But the FCA may be hoping this will change the mindset of the banks.

"The bottom line is that savers have to move their money and if they don't then it is all a pointless exercise. There is so much more that needs to be considered other than having one interest rate.

"If people do suddenly become engage in switching accounts, then it would be a different story. But that is the big 'if'."

Rachel Springall, finance expert at Moneyfacts.co.uk, said it was difficult to tell how attractive interest rates will be and advised consumers to shop around.

"Transparency does not always provide consumers with a better deal and providers would need to work out whether they would have to increase rates for lending to accommodate a rise in paying out interest on savings," she said.

"Providers are unlikely to offer generous interest rates right now with the current economic and political climate, so they could even be cutting rates to deter investors so that they don’t become too cash flushed."

The FCA defended its analysis on the consumer gain, saying it was based on their assumption that banks will provide a higher overall interest on easy access savings balances, "as price-sensitive consumers are pooled with less sensitive ones".

And it said it has considered that one of the "unintended" consequences of their move may be that banks will try to recoup any increase in costs by raising the cost of their products to consumers.

"We recognise that firms would continue to manage their net interest margin to earn a return, but consider that alongside this they need to have regard to the fair treatment of their longstanding customers," said the FCA.

"We also expect the overall impact of this intervention to firms to be low compared to total balances held, and any such passing on of costs to be low as a result. We have not seen evidence that competition and effects in the cash savings market have a material impact on other banking products."