The Financial Conduct Authority has launched a 14-point action to spur banks and building societies to pass on interest rates rise to cash savers faster.

The regulator wants to shake up the savings market to give savers a better deal, it says.

The FCA says is also working with the biggest savings providers to develop a 'Savings Dashboard' to gauge consumer activity in the savings market.

Firms offering the lowest savings rates will be required to justify by the end of August how their rates offer fair value in compliance with the Consumer Duty which begins today.

The FCA said if they cannot justify how their rates offer fair value it will take action.

The watchdog says it wants cash saving providers to communicate with customers “much more effectively” and offer them better savings rate deals.  

The shake up comes amid complaints that some savings providers have been slow to pass on recent interest rate rises, particularly on older and instance access accounts.

FCA research found that while interest rates on savings accounts have been rising, this has been happening at a slower pace on easy access accounts.

The new plan follows an FCA review of the cash savings market and a roundtable meeting with banks held in early July.

Nine of the biggest savings providers, on average, only passed on 28% of the base rate rise to their easy access deposits between January 2022 and May 2023, FCA research showed.

Notice and fixed term deposits have seen greater ‘pass through’ of rate rises, with these nine firms passing through 51% over the same period.

The watchdog said there had been significant variance between firms, with smaller firms offering higher interest rates on average than larger competitors.  

Sheldon Mills, executive director of consumers and competition at the FCA, said: “We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates.  

“We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case – with firms required to prove to us that they are offering their customers fair value.  

“We continue to urge savers to shop around to take advantage of the increasing number of better saving deals available.”   

Among the savings changes the FCA will implement:  

• Requiring firms offering the lowest rates to provide their fair value assessments under the Consumer Duty by 31 August 2023 and take robust action by the end of 2023 against those who cannot demonstrate fair value

• Reviewing the timing of firms’ savings rate changes each time there is a base rate change 

• Publishing an analysis every six months of firms’ easy access savings rates, listing distribution from best to worst   

• Review firms’ performance on cash ISA to cash ISA switching.

• Review the effectiveness of firms’ engagement with customers by the end of March 2024 and take action if firms have not effectively delivered the outcomes the FCA has set out.  

• Working with others, including the Money and Pensions Service, to identify what more can be done to support consumers to save regularly, strengthening their financial resilience. 

The FCA says it will also assess the ‘fair value’ of off-sale or closed savings accounts and will monitor the market and will take further action if it does not see significant progress by the end of 2023.