Cash in the Bank? FCA plans for ‘better deal’ for savers

Cash in the Bank? FCA plans for ‘better deal’ for savers

Millions of savers who leave money in the same account for years should get a better deal under new plans proposed by the Financial Conduct Authority.

The proposals, which could take effect early next year, are designed to overcome the problem of savings rates being slashed at the end of an introductory bonus period. It would mean banks have to introduce a single long-term interest rate that is paid to both long-standing customers and those whose introductory offer had just ended.

It’s estimated that 70% of savers leave their money in the same account for years, sometimes receiving as little as 0.1% in interest, as banks gradually reduce rates over time.1

UK Finance, which represents the major banks, said that the additional costs of the regulation would need to be recovered through higher mortgage and loan rates, and possibly through lower introductory rates.

“These changes would be some welcome news for cash savers, but the outlook is still pretty bleak,” said Phil Woodcock, Head of Investment Communications at St. James’s Place. “The average easy access account rate is currently just 0.60%.2 The risk in holding cash as part of a long-term strategy is that the interest doesn’t keep pace with inflation, so the spending power of your money is reducing.”

The proposals came in the same week that three members of the Bank of England’s Monetary Policy Committee said they may be willing to cut interest rates at the end of this month, depending on how the economy has performed since the general election.

The bottom line: Inflation tends to cut into an individual’s purchasing power over time. Fortunately, there are ways of preserving the purchasing power of your savings. That means investing, but keeping your level of risk moderate and having a well-diversified portfolio is key.

1 Source: FCA report, 9 January, 2019

2 Moneyfacts, December 2019

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.