As the FCA takes a look into the drivers of change and sources of potential harm in various markets – including saving, borrowing, insurance and pensions – Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on what it has to say about savings:
“The savings market is mid-transformation. From a distance it’s hard to spot – like opening the phone box and discovering Clark Kent with his glasses off and his tie askew – but look a little closer, and you’ll see a major transformation is underway.
“The report highlights that technology has been driving change in 2018, as financial and technology companies come up with new and innovative ways of helping people make more of their money. And this period of transition has only just kicked off. Open Banking is just under a year old, and while we have seen an intense period of development, it’s still very early days in terms of offerings hitting the market.
“From our perspective, one of the biggest technological developments in the savings market in 2018 has been the arrival of the online savings marketplaces. The likes of Raisin, Octopus Cash and Active Savings from HL allow savers to compare and switch between accounts from different banks on a single platform – in a handful of clicks – taking the legwork out of switching entirely.
“There’s the hope that this will help people overcome their reluctance to switch bank accounts. Our own research shows that 40% of people have never switched a savings account or cash ISA – and half haven’t switched in the past five years. The FCA report highlights that only 71% of savings accounts currently pay more than the Bank of England base rate – compared with 74% this year – so those who leave their cash languishing are increasingly likely to see their rate drop below the base rate.”
“The FCA has warned that new technology in the banking sector comes with potential dangers. It said ‘Cyber-attacks in the financial services sector are becoming more frequent and widespread. This is potentially made worse by the use of complex and ageing IT systems, outsourcing of operations and the growing transfer of data between firms.’ It means that those firms that can demonstrate their IT expertise and robust security measures will be the ones that convince savers to change engrained habits in order to make more of their money.”
“The report also highlighted that the tough economic environment poses a risk in itself, because people’s finances are under pressure, from higher debt levels, sluggish wage growth and higher inflation – not to mention political and economic uncertainty about the immediate future. It pointed out that lower savings rates – which are largely below inflation at the moment – are also putting people off saving.
But while pressure on our finances from a tough economic environment can make it more difficult to free up cash for saving, it also makes it even more important for us to have an emergency savings account. Just freeing up a small, regular, monthly sum, and setting up a direct debit to transfer it into a savings account will help protect your family from the uncertainty ahead.”