What Does The Minimum Savings Rate Mean For You?
Banks could be forced to set a minimum interest rate on savings accounts under proposals from the Financial Conduct Authority (FCA).
The FCA – which regulates banks and other financial institutions – is concerned that customers who have stayed with the same banks and building societies for many years earn poor returns on their savings compared to people who have opened accounts more recently.
A FCA discussion paper suggested banks were taking advantage of customers’ inaction with some banks paying just 0.05% a year on instant access savings accounts.
That’s a fraction of the amount you can earn with an easyMoney innovative finance ISA. easyMoney is one of a number of organisations that has been pushing for more transparency and greater risk warnings with cash ISAs.
The basic savings rate
If introduced, the basic savings rate would apply to all easy access cash saving accounts and easy access cash ISAs after they have been open for a set period of time, such as a year. The idea is to promote competition and help get customers a better rate of interest.
Under the FCA proposals, it would be up to each bank to set their own basic savings rate, which would apply across all the bank’s instant access accounts. The rates would then be published on the FCA's website, so consumers could compare them easily.
According to the FCA, 87% of UK adults have cash savings. In 2015, the FCA completed a competition study into the cash savings market. It found competition wasn’t working well, particularly for customers who stay with the same provider for a long time. According to Citizens Advice, the average amount savers lose by not switching savings accounts stands at £48 a year.
Alternatives to cash savings account
The fact the regulator is considering stepping in and changing the rules shows just how bad the situation has become for British savers.
While it’s a good idea to have cash savings in case of emergencies, once you have stashed away the equivalent of six months’ of your salary you can afford to take a bit more risk with your money.
Investing your money makes it work harder. ISAs offer a choice of products and, although more risky, can pay much higher rates.
The easyMoney innovative finance ISA, for example, has expected returns of 7.28%, assuming full investment. The accounts have attracted a significant amount of funds previously held in cash ISAs paying rock-bottom rates, as well as rival innovative finance ISAs.
It’s important to understand risk before making the move from saving in cash to investing in the stock market or innovative finance.
Cash is pretty much risk-free, assuming your money is protected by the Financial Services Compensation Scheme. However, there is a risk inflation will erode the true value of your money.
Stocks and shares are more risky – the value of your investment may go up or down, and your capital may be at risk. But the rewards are normally greater too.
An easyMoney IF ISA isn’t risk-free either but all lending is secured by UK property, giving you peace of mind. You can invest up to £20,000 a year and you can ask to withdraw your money at any time.
You can open an easyMoney account at easymoney.com or by calling 020 3858 7269. You can either start from scratch or transfer from other stocks and shares or cash ISAs. The minimum investment is £100. Remember, as with all investing, your capital is at risk. If you invest £1,000 or more you’ll receive an easyMoney Plus card for free offering some serious discounts at more than 100 of the UK’s biggest retailers.