Description of the programme
Cash savings are the most popular form of household savings in the UK, with around 93% of consumers having a savings account. However, significant differences exist among interest rates on similar products, both within and between providers. Providers often offer lower interest rates on older accounts than they do on newer savings vehicles, meaning long-term customers tend to receive lower interest rates. Despite higher interest rates often being available, most customers do not switch their savings accounts and miss out on the higher earnings that are available.
New disclosure proposals were developed to help customers identify better products and increase competition between financial institutions. This 2016 evaluation from the Financial Conduct Authority, collaborating with five regulated financial firms, tests the effectiveness of these disclosure designs and the impact they have on consumers deciding to switch to savings accounts with higher rates of interest.
In the study, data was used from five randomised control trials (RCTs) with over 130,000 savings account holders, using data from 2015. Potential regulatory interventions were tested across three main areas:
Search and comparison – comprising providing information about comparable higher-rate paying products;
Ease of implementation – a pre-filled return form that enabled simplified switching;
Attention to the task – sending a timely reminder about the rate decrease.
The five trials were as follows:
A ‘switching box’ (containing information about current interest rates and links to higher-interest products) was included on the front page of a letter sent to consumers. The control group received a standard annual statement with no additional information.
A switching box was tested on the back page of a letter sent to consumers. The control group received a letter informing consumers of a recent interest-rate decrease on their account, but with no switching box.
A pre-filled switching form was tested, in addition to a switching box. The control group received the same letter including a switching box, but with no form.
Email or SMS reminders were sent to consumers that experienced scheduled interest-rate decreases. The control group received only the initial, standardised letter as mandated by current regulation.
SMS reminders were sent to consumers that experienced scheduled interest-rate decreases. The control group received only the initial, standardised letter as mandated by current regulation.
The following measures were used to indicate whether customers took clear action to increase the interest rate on their savings:
- Whether the customer opened a new, comparable savings account with the firm, and moved some money into it;
- Whether the customer emptied the savings account (or at least 95% of it);
- Whether the customer closed the original account.
- The simple pre-filled return switching form (Trial Three) and well-timed reminders (Trial Four) led to the highest increase in switching of up to nine percentage points.
- The return switching form increased switching form a baseline of 3% to 12%.
- Prominent disclosures – in particular the front-page information on better available products (Trial One) – had marginal positive effects raising switching from 3% to 6%.
- Trial Two – the ‘non-front page’ disclosure showed no significant effect.
- Evidence suggested that reminders were most effective when sent shortly before the rate decrease, compared to earlier reminders.
- The switching levels in the control groups varied significantly across the trials in line with different samples and customer contexts (such as the amount of savings they had).
- Overall about half of the people who switched in the trials chose to switch to a comparable product offering a higher rate of interest from their current provider. The remainder chose different accounts or different providers.
- The treatments in all trials increased switching within the current provider, though not to alternative providers, suggesting there are other factors that influence which provider a consumer chooses.
- Across all trials, the switching level is low at 17%, with one explanation being that the potential gains didn’t justify the consumer switching – the average amount of extra interest that stood to be gained by switching across the trials was less than £32.
- However, many consumers within the sample with high amounts of savings still didn’t switch, again showing that switching is only partly driven by potential financial gains through extra interest.
Points to consider
Methodological strengths/weaknesses: Findings are tested for statistical significance, adding more robustness to the analysis.
- Control groups are used, allowing findings from the intervention group to be compared with a group not receiving the same intervention for benchmarking purposes.
Generalisability/ transferability: The evaluation is of significant interest to those looking to commission or authorise interventions designed to increase the number of consumers switching to higher-yield savings products.
Relevance: The findings are based on customers from five UK financial institutions and should not necessarily be seen as representative of the entire market.