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How Consumer Duty is going to affect your savings

How Consumer Duty is going to affect your savings


Date published

We’ve talked before about Consumer Duty and its impact on the way we work as a firm. It came into force on July 31st and applies to all products and services within the financial services industry. Clearly, this also applies to improving consumer protection when it comes to cash savings.

The FCA has carried out a report into cash savings, with a focus on ensuring banks and building societies are passing interest rate rises on to savers to give them better savings outcomes within a competitive and well-functioning savings market.

Why is this so important? Well, there’s £1.5 trillion held in UK savings accounts. And the Bank of England base rate has soared from 0.1% in December 2021 to a current rate of 5.25% (where it’s being held, at least for now) which is the highest it’s been since the 2008 financial crisis. That jump equates to a lot of potential value when applied to £1.5 trillion…

The FCA’s report found that although rates have been rising on savings accounts, it’s not always in line with the Bank of England base rate, particularly when it comes to easy access accounts.

Looking at the products of nine of the biggest savings providers, the FCA discovered that between January 2022 and May 2023, only 28% of the base rate rise was passed on to easy access deposits. This is in comparison to 51% being applied to fixed term deposit accounts.

The report also uncovered a significant variance between firms, with smaller providers offering higher rates than their larger counterparts on average.

Under the new Consumer Duty approach, those firms offering the lowest savings rates must now justify how their products are offering fair value, with the FCA stepping in to intervene when not satisfied.

All firms must also improve their customer communications around the options available, including informing and enabling consumers to swap to products offering better savings outcomes. They will also be required to demonstrate that they are reviewing the interest rates they offer in a timely manner in response to future changes in the Bank of England base rate.

Here’s a full list of what the FCA has committed to as a result of the recent report:

1. Require firms offering the lowest rates to provide their fair value assessments under the Consumer Duty and take robust action by the end of 2023 against those who cannot demonstrate fair value.

2. Review the timing of firms’ savings rate changes each time there is a base rate change.

3. Publish an analysis every 6 months of firms’ easy access savings rates, listing distribution from best to worst.

4. Analyse the difference between on-sale and off-sale products, challenging firms to explain how large differences offer fair value and considering further action if this gap does not continue to close.

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

6. Conduct further analysis into the contribution of cash savings to firms’ profitability.

7. 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.

8. Work 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.

We’re sure you’ll agree that this all sounds like an overwhelmingly positive step for savers, with more transparency, fairer rates and better communication from providers.

The FCA describes Consumer Duty as an opportunity for the whole financial services industry to ‘continuously improve outcomes and better serve customers’ and we’re completely onboard. We’ve had our own Consumer Duty work assessed by the people who take care of our external compliance, and they were positive about the steps we’ve taken, noting that we’ve applied a very ‘Gibson Lamb approach’, including lots of information and data, some of which they’ve not seen before. We take our responsibilities towards clients very seriously and are pleased to have that recognised.