The FCA is proposing to reform the easy access cash savings market by requiring firms to set a single interest rate known as "Single Easy Access Rate" or "SEAR" for easy access savings accounts and easy access ISAs. The proposals target these accounts because the FCA found harm in the Cash Savings Market Study with consumers failing to switch to higher rates at the end of introductory offers.

Banks and building societies will want to consider the potential impact of the changes, which are likely to include additional liquidity management costs and increased account opening costs from consumer switching.

SEAR: Key features

Firms can set SEARs at levels of their own choosing

  • Firms will have flexibility to offer multiple introductory rates for up to 12 months, after which they will need to choose one SEAR for their easy access cash savings accounts, and one for their easy access cash savings ISAs.
  • Firms will be able to set the SEARs at the levels they choose. The FCA thinks this will ensure a proportionate impact on firms and maintain competition in the market, while at the same time protecting longstanding customers.

Firms must publish SEARs data every 6 months

  • The proposals require firms to publish data every 6 months on the SEARs they offer to make them easier to compare with the rates that other firms are offering at the time of opening an account.
  • This should also help longstanding customers to see whether their existing product gives them a good interest rate as their provider will have only one rate rather than multiple rates.

Increasing interest rate competition, tackling price discrimination

  • The FCA thinks the SEAR will encourage switching and avoid issues associated with the loyalty penalty.
  • It also expects that firms will set their SEARs higher than the current rates offered to longstanding customers.
  • The FCA estimates that consumers will benefit by £260m from higher interest payments.

What's next?

The FCA is asking for feedback on its proposals by 9 April 2020. It will follow up in the second half of 2020. If it decides to take forward the proposals, it currently thinks that it would implement these at the start of the 2021/22 tax year, providing an implementation period of at least 6 months.