Description of the programme
A study by the Financial Conduct Authority (the ‘Cash Savings Market Study’) found that a large proportion of customers are not shopping around for savings accounts and do not switch their accounts even when higher rates of interest are available elsewhere. The study also found that 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. The time and effort associated with switching is seen as the key reason for people sticking with their existing accounts, though other reasons include behavioural biases such as limited attention, loss aversion and ‘present bias’. Further studies have shown that relatively minor interventions such as changes to communications can help to mitigate these reasons and encourage customers to take action.
This 2015 report from the Financial Conduct Authority examines the impact of messaging and reminders on the switching behaviour of consumers in relation to their savings accounts. The main aims are to investigate the effects on switching behaviour of:
- Sending an additional letter that reminded customers of an interest rate change;
- Different messages in the reminder letter designed to mitigate the effects of behavioural biases;
- The timing of the reminder letter, and in particular, whether it was sent before or after a customer’s interest rate decrease.
A total of 20,508 customers were selected from the firm’s database, including those who had a savings account where the interest rate was about to decrease (57% of the sample) or had already recently decreased (43% of the sample). These were relatively high-worth customers, with 80% of them having savings of more than £10,000. All of these customers had already received the standard letter two to three months previously informing them of the interest rate decrease. The customers were divided into four groups:
Group One (20% of the total sample) was the control group and received no further communications from the firm.
Group Two (20% of the total sample) received a duplicate reminder letter that was the same as the one already sent to all customers.
Group Three (30% of the total sample) received a further letter highlighting the financial losses from not switching, and was intended to test whether invoking loss aversion made customers act.
Group Four (30% of the total sample) highlighted the financial gains from switching, and showed customers comparable products with higher interest rates than their current account.
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.
- Overall, the reminders made a considerable difference to switching behaviour.
- The control group provides an indication of general switching behaviour, with a substantial share of customers (between 50% to 70%) taking one of a range of actions within 20 weeks of their rate decrease.
- It was possible to increase this by between approximately 6% and 8% simply by sending the extra reminders received by groups two, three and four.
- Those who received a standard reminder had approximately a 6% higher likelihood of switching their account within the few months following the reminder.
- Customers who received a reminder in which cash loss (Group Three) or cash gain (Group Four) was highlighted were slightly more likely to switch accounts than those who received the standard extra reminder (Group Two), with approximately an 8% higher likelihood of switching their accounts.
- Overall it was found that sending a reminder before the rate drop, increased switching by about 7% compared with not sending a reminder.
- Sending a reminder after the rate decrease also led to more customers switching accounts compared with not sending a reminder, but only by encouraging people to open a new comparable account with the same firm.
- While older customers (60+) or those with higher than average balances were the most likely to switch accounts, reminders increased the rate of switching across all customers.
Points to consider
Methodological strengths/weaknesses: Findings are tested for statistical significance, adding more robustness to the analysis.
- A control group is used, allowing findings from the intervention group to be compared with an external group 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 more suitable financial products.
Relevance: The findings are based on savers from around the UK, though are not weighted to be nationally representative.