The FCA has today published a discussion paper on price discrimination in the cash savings market.

The regulator set out a range of options to address issues faced by longstanding customers including introducing a basic savings rate.

The move came amid concerns that the interest rates longstanding customers received on easy access cash savings products were generally lower than those received by customers who shopped around.

The new discussion paper calls for input on how to address the harm caused by price discrimination.

The regulator says the basic savings rate option would apply to all easy access cash saving accounts and easy access cash ISAs after they have been open for a set period of time, such as a year.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.

“While many customers have valid reasons for not shopping around, providers must still treat them fairly, while maintaining competitive rates for those who do.

“Efforts to encourage customers to switch have had limited impact and we remain concerned about the way firms are treating customers.

“This is why we are considering the introduction of a basic savings rate for older accounts, which would promote competition and help get customers a better rate of interest.”

Statistics showed that 87% of UK adults have cash savings.

In 2015, the FCA completed a competition study into the cash savings market which found that competition was not working well, particularly for customers who stay with the same provider for a long time.

The probe also found that customers were put off switching by the expected difficulty.

The FCA said large, well-established personal current account providers are able to attract most savings balances despite offering lower rates and there was “a lack of product transparency.”

It implemented a package of measures to address some of the harm, which came into force in 2016.

This included trialling other disclosure remedies proposed in the Market Study, including a switching box, but they did not lead to the desired changes in behaviour to address the harm to
longstanding customers.  

The FCA is now seeking feedback on the options set out in the discussion paper, which closes on the 25 October.