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Banks might need to have a ‘basic savings rate’

For those of us who don't shop around for bank accounts, this would make it easier to get our money's worth on savings

Some high street banks are paying savers as little as 0.01% interest on their money. That might have to change.

What it means: Interest rates exist in part to give us an incentive to keep some money in the bank for a rainy day. But if they're ridiculously low, that incentive doesn't work so well.

The theory is that we, as informed and highly rational economic agents, will shop around different bank accounts to get the one with the best interest rate. In practice, loads of us put our money somewhere and leave it there, even if we could be getting higher interest somewhere else.

Hoping to persuade people to change behaviour rather than have to put in a new rule about it, the Financial Conduct Authority (FCA) ran a few campaigns to try and persuade us to switch accounts. It didn't work.

So instead, they're taking the top down approach, proposing a 'basic savings rate' that banks need to set which gives people a respectable amount of interest on their savings.

Which sounds nice, but here in the UK we only save 4.1% of our income anyway (down from almost 15% in the 1990s)... so this might just be a small part of a much bigger problem.

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