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FCA could probe ‘teaser’ rates

The Financial Conduct Authority (FCA) has hinted that it could launch an investigation into ‘teaser’ rates which could lead to action being taken against companies who mislead consumers.

Teaser rates are those that lure customers to a product, such as a cash Isa, with higher initial interest rates. However these are only introductory rates, sometimes containing a first year bonus, and will drop off again after the first twelve months, sometimes to as little as 0.1pc.

This has led to a great deal of criticism from consumer groups, as well as one of the new high street banks, who say there should be more transparency and honesty from providers as to what the consumer is actually getting.

Martin Wheatley, chief executive of the FCA said: “The smart consumer switches at the end of that year to a new teaser rate. What do most people do? – Nothing. They stay in these products like a boiled frog in water”.

“At their worst they can be the financial equivalent of a Venus fly-trap, enticing consumer towards the product and relying on human inertia to keep them there”.

A Consumer Focus survey conducted two years ago revealed that two thirds of savers who opened a cash Isa failed to move their money once their initial teaser rate expired.

Rachel Springall of Moneyfacts said: “Savers need to be vigilant when taking out a deal with an introductory bonus, because it does come down to the fact that it is their responsibility to keep on top of the rate of interest”.

If you have any questions about your savings, or any other financial matter, please contact one of our advisors who will be happy to help.

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