Savings rates are abysmal - but that’s not the regulator’s problem

The Financial Conduct Authority published the interim findings of its review into the savings market this week - almost 10 months after the study was announced. Astonishingly, this was only the half-way stage - and saw the publication of a document whose only purpose seemed to be to justify the existence of the review in the first place.

While there are myriad problems in the financial services market - the savings industry actually does a fairly good job. Yes, rates are low. But this is mainly as a result of monetary policy - it can hardly be blamed on market failure. In relative terms, savings rates are fairly generous - with new accounts paying around three times as much as banks can get by depositing their money in the Bank of England overnight.

Anyone for a tenner?

The FCA rightly highlights that switching rates are low. Which? estimates that savers are collectively losing over £4bn a year in interest, by leaving their money languishing in accounts that pay poor levels of interest. But the level of detriment for most individuals is incredibly small. The difference between having £1,000 in an account paying 0.5% and 1.5% is £10 of interest each year. Sure, few people would knock back a tenner if it were handed to them - but it's as nothing compared to the amounts that people are losing by having their money in high charging poor-performing investment funds, for example.

The savings industry is not, of course, without fault. Many banks still don't put interest rates on statements, and the rules still allow banks to get away with lowering rates by a small amount without even having to notify their customers. Transparency and communication could undoubtedly be improved. But the solutions are relatively simple, and quick to enforce. I have no idea what the FCA's savings review team are occupying themselves with for 15 months.

Here's four steps that the FCA should take:

• Banks should be forced to prominently display rates on both paper and online statements.
• All interest rate changes should be communicated to customers by a variety of different communication methods.
• Banks should be forced to write, text and email customers when their bonus period comes to an end.
• Customers should only have their money rolled over into accounts where they can get it out penalty-free.

After that, we've got to hand responsibility back to the customer. It may be a pain to keep moving your savings every year to chase the best rate, but there are already services such as Savings Champion, who will do all the heavy lifting for you if you’ve got a decent amount of money stashed away.

My advice to the FCA would be to knock its savings review on the head now, rather than spend another six months deliberating. There are so many bigger fish to fry - some of which are costing consumers thousands, not tens, of pounds.