UK’s FCA Cautions Banks About Lowering Savings Rates Too Quickly

At a time when the market expects interest rates to continue dropping, the United Kingdom’s Financial Conduct Authority (FCA) is cautioning banks and building societies about lowering the rates they offer on consumers’ savings faster than they raised them.

The regulator said in an update posted Wednesday (Sept. 18) that while it understands that firms must balance their lending and savings pricing in line with their business model, the FCA will monitor their savings rate changes.

“Our 2023 review considered the speed and extent of firms’ interest rate pass-through, and we will expect a clear explanation should we identify that a firm has changed its savings rates significantly more quickly and fully in response to interest rate reductions, compared to previous interest rate increases,” the update said.

The FCA said in a press release issued Wednesday that actions it has taken to improve competition and support better communications have had a positive effect on the interest rates offered to consumers over the past year.

In the time since the regulator published its Cash Savings Market Review, the average interest rate paid on easy access savings accounts rose from 1.66% in July 2023 to 2.11% in July 2024 — earning savers an additional 4 billion pounds (about $5.3 billion) a year, according to the release.

With the base rate starting to fall, the FCA encourages consumers to seek the best deals and switch if necessary. While the largest firms continue to pay below average interest rates for easy access products, 174 accounts offered rates over 4% in August, per the release.

“We found room for improvement in how firms assess the value offered by their savings products,” the release said. “We expect firms to improve these assessments, having considered our feedback, and will take appropriate action where this is not the case.”

The update came on the same day that the FCA began mandating that banks and building societies examine how accessible cash is within surrounding communities. As ATMs and financial institution branches may be declining, these organizations will have to take steps to make sure that accessibility is still in place.