Proposals to introduce a single easy access rate in the cash savings market have been shelved by the City regulator.
The Financial Conduct Authority (FCA) said on Friday that it intends to either stop or postpone some of its work in light of the ongoing impact of coronavirus and economic conditions.
As part of this, it has stopped looking into the possibility of introducing a single easy access savings rate.
In January 2020, the FCA published a consultation paper setting out proposals to simplify and improve competition regarding cash savings.
This included proposals that providers should set single savings rates that would apply to accounts after a 12-month introductory rate ended.
The aim was to make it clearer to consumers what their account would look like beyond just the first year, following concerns that longstanding customers often end up on low rates.
But since the coronavirus crisis started, savings rates generally have been slashed in the tough economic conditions.
This means the gap between the best and worst rates has been squashed – as rates generally are poor.
The FCA said on Friday: “Given the continuing impact of coronavirus and the low interest rate environment, we have decided to stop this work.
“As interest rates for new products fall, so does the gap between rates paid to new and longstanding customers, and the size of the harm falls.
“We therefore do not consider that introducing the Sear (single easy access rate) would be proportionate to the current level of harm in this market.
“However, we will continue to monitor the market and we may revisit our priorities if we see significant harm to consumers in the future.”
The FCA has also called a halt to a separate investigation into potentially restricting exit fees charged by investment platforms.
It said that since expressing its concerns in 2018, there has been a marked shift in the market away from exit fees. It will continue to monitor the situation.
Richard Wilson, chief executive of investment platform interactive investor, said: “We are saddened to see this news snuck out on the afternoon of Friday 13.”
He added: “There are still platforms out there that have grown far too complacent, relying on customer inertia and hefty penalties.”
Sarah Coles, a personal finance analyst at Hargreaves Lansdown said: “The FCA’s plans to introduce a basic savings rate, or single easy access rate, have been shelved, on the grounds that banks don’t have much scope to cut rates for loyal customers when they’re so low in the first place, and the FCA has other things to be getting on with during the pandemic.
“It took the view that the single rate would be using a sledgehammer to crack a nut that has already fallen open.
“It’s never a brilliant idea to abandon a well-crafted strategy because it doesn’t happen to suit the current market environment, but in this case the basic savings rate was far from perfect.
“In protecting very loyal savers from being ripped off, it risked building a model whereby everyone had to switch every year or suffer the consequences.”
Ms Coles added: “(The FCA) has said it will keep its eye on the market, so we could see plans dusted off when rates rise.
“However, there’s still plenty of work to be done before a basic savings rate could become a real game changer in the savings market.”
She said on exit fees: “This was a chance to ensure that no-one has to pay a penalty or fee for trying to do better with their money, so halting the consultation is a missed opportunity.”