The FCA has published an update on its cash savings market study.

In January 2015, the FCA completed a study into the cash savings market and found that the market is not working well for consumers.  In December 2015, the FCA published a policy statement containing measures intended to improve competition in the cash savings market.

In the recent update, the FCA explained the main findings from the trials and follow-up research it carried out in 2015 to test a number of additional remedies.  More detail can be found in the Occasional Paper 19 that was published alongside the update, however in summary the main findings from the trials were:

  • Digital reminders – this tested the effectiveness of reminders about interest rate changes sent by email and SMS in comparison to letter-based reminders previously tested.  These reminders were effective in encouraging customers to take action.  The results show that the effectiveness of email and SMS reminders can be comparable to letter reminders in certain circumstances.  The findings of this trial supports the guidance that will come into effect in December this year that encourages firms to consider customers’ preferences when choosing the channel used (i.e. letter, email, SMS).  Therefore, no further action is necessary.
  • Return switching form – this tested the effectiveness of a simple ‘tear off’ form and pre-paid envelope enabling a customer to switch to a better paying account offered by their firm more easily.  This form was effective in making it easier for customers to switch to a better rate offered by their existing provider.  It increased internal switching by around 9%.  This additional internal switching appears to have been generated from customers that would not otherwise have taken action (i.e. there was no negative impact on external switching).
  • Switching box -  this was provided periodically to customers to give information on the potential financial gains from shopping around and switching, prompting customers to consider their choice of account and provider.  The results of this trial were mixed.  One trial involving the switching box on the front page of an annual statement led to a modest increase in internal switching but no increase in external switching; the inclusion of information about rates achievable elsewhere in the market in fact led to a small reduction in internal switching.  In a second trial, involving the switching box on the reverse of a letter notifying customers of a rate reduction, no significant impact was found.
  • Auto-renewal of certain fixed term products (including fixed term bonds and ISAs) – research found that consumer detriment from this practice is limited, largely due to the prevalence of cooling off periods after renewal.  The FCA also found that the large majority of providers in the sample that auto-renew customers, do so onto an open account and do not offer existing customers less favourable interest rates.  As a result, the FCA does not intend to take forward proposals requiring firms to obtain explicit consent from customers for their account to auto-renew on maturity. 

The FCA comments that some of the findings demonstrate the difficulties involved in encouraging customers to consider their choice of account and provider. It will consider whether other regulatory tools are needed to achieve more effective competition. It suggests that its options could include alternative disclosure methods or taking action on product design or the switching process. The FCA will report on this further analysis and will bring forward any proposals for consultation.