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FCA: Cash Savings Market Experiences Surging Interest Rates

The cash savings market is undergoing a notable
shift marked by a surge in interest rates. Recent data released by the
Financial Conduct Authority (FCA) has revealed that this market has become more
competitive than in July, with several easy access accounts offering an interest rate of more than 5%.

Notably, the FCA's commitment to monitor firms and
market trends has resulted in a significant change. From July 2023 to October
2023, there was a shift in deposit volumes, with a reduction of £11
billion in non-interest-bearing and easy-access accounts. The amount in the fixed-term and notice accounts increased by £17 billion.

Sheldon Mills, the FCA's Executive Director of
Consumers and Competition, mentioned: "There is a more competitive savings
market now than July, including many easy access accounts paying above 5%. But
there are still low-paying accounts, particularly products that are no longer
on sale."

Surging Interest Rates and Regulatory Changes

The average rate on easy access deposits rose to
1.99% in October from 1.66% in July. The fixed-term accounts rose
from 2.94% to 3.52% in the same period. Currently, there are several accounts
offering rates of 5% or higher.

There’s a more competitive savings market now than July, including many easy access accounts paying above 5%. We want firms to keep prompting #customers in lower paying accounts to move, and we encourage customers to shop around for the best savings deals. https://t.co/lhCrpJfaqJ

— Financial Conduct Authority (@TheFCA) December 6, 2023

The introduction of the consumer duty has prompted the evaluation of fair value assessments, especially for low-paying savings
accounts. The focus is to enhance transfer performance, ensuring customers can
swiftly switch to better-value products. The UK's regulator has challenged
firms offering low-interest rates to respond.

Recently, the FCA introduced a proposal
requiring personal investment firms to maintain adequate reserves to cover
compensation costs arising from poor financial advice, adopting a
"polluter pays" approach.

The FCA's latest proposal ensures that investment
firms responsible for substandard advice are financially equipped to compensate
consumers. The "polluter pays" rule intends to shift the burden from
diligent advisors to firms responsible for harmful advice.

FCA Reveals Latest Investment Patterns

Separately, the FCA has intensified actions against
dormant license holders, aiming to reduce the risks associated with inactive
firms misleading consumers. The agency's report for the third quarter outlined
the amendment of financial promotions, primarily in retail investments and
lending sectors.

In May, the FCA released the findings of a study that delved
into the intriguing world of young investors. The research revealed the
tendency for shorter-term thinking in investments among these investors. It
noted that young people, more so men, were inclined to invest despite
identifying warning signs.

This article was written by Jared Kirui at www.financemagnates.com.