Banks’ savings account tactics in the spotlight

BONUS interest rates on savings accounts could be scrapped or face extra rules under a review launched yesterday by City watchdog the Financial Conduct Authority (FCA).

Top regulator Martin Wheatley said he is studying competition in the trillion-pound cash savings market to see if customers are getting a fair deal.

At the start of the new financial year in April, people are bombarded with advertisements from Britain’s major banks, encouraging them to put cash into accounts with favourable tax treatments.

The FCA, launched in April with a strong focus on stopping consumers being ripped off after a string of mis-selling scandals, said it was looking at the effects of so-called “teaser” or introductory interest rates to new customers.

Banks do well from inertia, where savers leave their money in the accounts at low rates after the bonus has expired, and the FCA will look at how often customers switch accounts.

“In looking at cash savings, we will examine an area that affects most people and see if there is action we need to take. This is exactly the sort of area I want the FCA to be operating in. We know that switching rates are low for financial services products and savings accounts are no exception,” said Wheatley. The watchdog will consider studying annuities once a review of the sector is finished by the end of the year. It will also review in early 2014 the way competition works between financial services firms.