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FCA pulls the plug on basic savings rate and exit fee consultations

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The FCA has called a halt to consultations on the Basic Savings Rate and platform exit fees.

What is a basic savings rate?

The idea was that all easy access savings accounts would offer introductory rates – possibly for a year – and after that expired, they would automatically be switched onto the BSR. Banks could set their own BSR, but it would be the same for all their customers. The idea is that banks would need to offer higher rates than those currently on offer to very long term savers, or they’d risk losing significant numbers of savers after a year.

On the Basic Savings Rate, Sarah Coles, personal finance analyst, Hargreaves Lansdown said:

“The FCA’s plans to introduce a basic savings rate (or single easy access rate) have been shelved, on the grounds that banks don’t have much scope to cut rates for loyal customers when they’re so low in the first place, and the FCA has other things to be getting on with during the pandemic. It took the view that the single rate would be using a sledgehammer to crack a nut that has already fallen open.

It’s never a brilliant idea to abandon a well-crafted strategy because it doesn’t happen to suit the current market environment, but in this case the basic savings rate was far from perfect.

In protecting very loyal savers from being ripped off, it risked building a model whereby everyone had to switch every year or suffer the consequences. It was based on the assumption that it would change saver behaviour, and get us switching, but given that our research shows that 43% of people have no idea what rate they’re getting and 60% don’t ever plan to switch, that’s a bold assumption.

Even if savers started switching more often, the FCA modelling showed that loyal savers would only be a smidge better off, while regular switchers would pay the price of lower introductory rates.

It has said it will keep its eye on the market, so we could see plans dusted off when rates rise. However, there’s still plenty of work to be done before a basic savings rate could become a real game changer in the savings market.”

 

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