Summary
Following their original review of the cash savings market and the update published in December 2023, the Financial Conduct Authority (FCA) has published a further update in September 2024. They find there have been improvements in both the rates available to savers and the volume and timing of firms' communications to savings customers, but many firms have found the assessment of value challenging and the largest firms generally continue to pay below the market average for easy access products.
The FCA has pledged to closely monitor firms' future savings rate changes and expects firms to improve FVAs over time with appropriate action taken if not. The FCA does not anticipate providing any more of these updates unless they identify a new specific market-wide concern.
We have set out in more detail below the FCA's findings in relation to its substantive review of the cash savings market. The update also includes a data update, profitability analysis and updates on financial resilience.
Recommended actions for firms
In light of this update, we recommend that cash savings firms:
- review defined target markets and FVAs against the examples of good and poor practice provided by the FCA and make updates where appropriate;
- keep a record of your reviews so that you can evidence acting on FCA feedback;
- consider whether you are at risk of not delivering good customer outcomes based on the FCA's findings, including where you provide multiple tranches of savings products, using annually renewable rates and regressive interest rate tiering; and
- review and test your customer communications to ensure they are effectively supporting customers to take actions in their interests rather than being overly passive and vague.
Detailed findings
Review of FVAs
The update sets out the FCAs key findings on the assessment of fair value for cash savings firms under the Consumer Duty. We have looked at these examples of good and poor practice that the FCA has drawn out in our client note [link] on the fair value good and poor practice publication.
Areas at risk of not delivering good customer outcomes
The FCA has identified several practices which (whilst permitted) pose a greater risk of not delivering good customer outcomes:
- Creating multiple tranches of a savings product which offer the same terms and conditions, but new customers get a higher interest rate then existing customers
There is a risk that firms will not meet their obligations under the Duty in relation to existing customers, especially where the customer communication does not explain that they could move to the higher rate.
- Using annually renewable bonus rates on savings products
If customers are required to register for a bonus and either (i) the rate without the bonus is an outlier or (ii) there is a lack of effective customer communications to encourage customers to register, then there could be a risk that this structure does not comply with the Consumer Duty. MI showing a low uptake of the bonus may be an indication that customers are not receiving fair value or are not being effectively communicated with.
- Using regressive interest rate tiering to discourage customers from maintaining large balances in easy access savings accounts.
This feature needs to be monitored to assess whether the majority of balances receive lower rates, how that lower rate compares with other accounts and that customers with larger balances have adequately considered the alternatives.
Customer communications
Since the July 2023 review, firms are sending more communications to savings customers, however the effectiveness of repeated, large volume, generic communications is limited. Communications are more effective when targeted at specific and narrow populations of customers. The FCA found that communications are often:
- Overly passive, vague calls to action
- Generic with a lack of upfront signposting to further detail
- Full of jargon and lack of explanation
The FCA recommends firms undertake customer research on understanding and timing of communications.
