Most investment platforms are paying customers an interest rate on their cash balances that is far below the Bank of England base rate - and also below the best savings accounts.
The top easy-access savings account pays 5.2% right now, while the market-leading one-year savings account pays 5.3%.
But it is hard to find this type of rate if you have uninvested cash on an investment platform.
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AJ Bell's beginner-focused investing app Dodl has launched a top rate of 5.09% on cash balances through its stocks and shares and lifetime ISA.
This makes it a market leader compared with the interest paid on cash balances by other investment platforms.
However, Dodl is a pared-back version of AJ Bell so you don't get the full range and functionality that you would on other platforms, although it could be worth considering if you are a beginner investor.
We asked eight large investment platforms how much interest they pay to investors on cash holdings, whether in an investment account, stocks and shares ISA or self-invested personal pension (Sipp).
Some pay measly rates below 2%. The most generous rate is currently 4.45%. This is despite a base rate of 5%.
It comes after the Financial Conduct Authority (FCA) wrote to investment firms warning it will step in if they don't offer "fair value" on customers’ cash balances. It says firms are collectively earning £74.3 million in revenue from failing to pay a fair amount of interest (and therefore retaining some of the interest), and/or charging a fee to hold customers' money in cash.
The majority of the platforms we surveyed hiked their rates last year and/or earlier this year to reflect the rising base rate. The base rate has gone up 14 times since December 2021. But most interest rates on cash held in investment or pension accounts are still way below 5.25%.
The interest rate earned on cash balances is particularly important as many investors choose to move money into cash within their account, waiting for opportunities to invest or markets to settle.
Some advised platforms, which are used by financial advisers to invest clients’ money, pay no interest and charge a fee to hold money in cash, meaning investors face a double whammy. The FCA calls this "double dipping" and has ordered firms to stop.
In terms of platforms for private investors, we outline how much interest investors earn on eight popular platforms, and what you can do to boost your return.
Barclays Smart Investor
Barclays Smart Investor previously won the award for paying the least amount of interest on cash balances - zero, to be precise, on ISAs and Sipps - but it has now started paying up to 1.65%.
This is part of wider changes on the investment platform, which has also simplified its fee structure.
It pays 1.65% interest on cash balances held in investment ISAs and Sipps, on balances up to £10,000. For additional balances above this level, the rate drops to 1.15%.
The investment account continues to pay zero interest, however Barclays says that "unless you’ve opted out, cash held in an investment account will be moved each day to an Investment Saver where it also earns interest". This is the same 1.65% / 1.15% rate as the other products.
The bank adds: "The rate is aligned to our Everyday Saver and it’s not intended for people to keep money as cash in their investment accounts for long periods of time. For those that want to do that, we have other savings products with higher rates that are more appropriate."
The interest is paid on the first day of each month, based on the cash held in the ISA, investment saver or Sipp the previous month.
Charles Stanley Direct
Charles Stanley Direct changed its rates in February this year. It now pays 2.5% interest on cash balances up to £99,999.
For those with cash balances above £99,999 in the Direct Investment Service - which includes general investment accounts (GIAs), ISAs and Sipps - a higher rate of 3% is paid.
Balances above £99,999 in other Charles Stanley accounts attract a rate of 3.25%.
Hargreaves Lansdown
The UK’s largest investment platform, Hargreaves Lansdown, has increased its interest rates several times over the past year - but they are still below the 5% base rate.
It pays 2.75% on the first £9,999 held as cash in a stocks and shares ISA, junior ISA or lifetime ISA, gradually rising to 3.45% on sums above £100,000. On fund and share accounts, the rate varies between 2% and 2.65%, depending on the size of cash holding.
For Sipps and junior Sipps, the platform pays better rates. Customers earn 3.2% on the first £9,999 held as cash, rising to 3.95% for balances of more than £100,000.
Hargreaves has an Active Savings service that offers better rates from partner banks, which investors can switch their cash into. There is no fee for this, and investors can currently earn 4.56% for easy access and 4.72% if they lock their cash away for one year. However, customers must actively switch. This is a separate cash savings platform managed alongside a customer’s investment accounts.
The platform said: “We tell clients when they are holding too much cash for too long, and encourage them to use our Active Savings service.”
Hargreaves recently launched a cash ISA, which offers savings products from providers like Coventry Building Society, Zopa and Santander.
Interactive Investor
Interactive Investor (ii) changed the rates of interest paid on certain cash balances held in ISAs, Sipps, and trading accounts in September.
For ISAs and junior ISAs, it offers 1.75% on the first £10,000 and 2.5% on the value between £10,000.01 and £100,000.
It pays 3.5% on the value between £100,000 and £1,000,000 and 4.5% on anything above that.
Sipp users can get 2.75% on balances of up to £10,000 and to 3.5% for balances up to £100,000. The rate of interest on the balance between £100,000 and £1,000,000 is 3.75%, rising to 4.5% for anything above £1,000,000.
Trading accounts now pay 1.75% on the first £10,000. Amounts up to £100,000 receive 2.5%, and anything over £100,000 receive 3.5%. For £ balances above £1,000,000 a new tier pays 4.5%.
There are no penalties for holding your money in cash. Interest on all accounts is calculated each day and credited on or around the 25th of each month.
Interactive Investor also offers a separate Cash Savings Account, where you can move your money between deals from more than 25 UK banks and building societies. Tying your cash up for six months currently earns you an interest rate of 4.7%, or 4.35% for those locking their money up for 18 months.
If you’re planning to leave some of your investment pot in cash for at least six months, it could be worth withdrawing your cash and taking advantage of this service.
AJ Bell
AJ Bell pays 2.3% on cash balances of £10,000 or below, in an ISA, junior ISA, lifetime ISA or dealing account.
For those with larger cash balances, the rate is 2.65% for amounts between £10,000 and £100,000 and 3.3% above £100,000.
Similar to Hargreaves and ii, there is a higher interest rate for cash holdings within Sipps. Cash balances of £10,000 or below earn 3% while bigger sums earn 3.5% up to £100,000 and 3.75% above that.
Sipp customers in drawdown with cash balances of below £10,000 are now receiving interest of 3.45%, rising to 3.95% up to £100,000 and 4.45% on balances worth more.
AJ Bell offers a Cash Savings Hub paying rates as high as 5%. Like the ii service, you need to lock your money up for at least six months. This is a separate feature to AJ Bell’s investment accounts, so you can’t hold these cash accounts in your ISA or Sipp.
Bestinvest
Bestinvest offers the best interest rate out of the investment platforms that we surveyed.
Its current interest rate on cash is 4.2%. This applies to all accounts, whether it’s a general investment account, ISA or Sipp.
The interest rate applies regardless of the value of the cash or the length of time the money sits in cash.
“We believe this is by some distance the most generous interest rate paid by any investment platform,” a spokesperson said. “Clients do not need to move their money out of these investment accounts to get this interest.”
The cash holdings are held with SEI, an external custodian, and Bestinvest does not take any of the interest as revenue.
Vanguard
The interest rate paid on cash held in Vanguard UK Personal Investor accounts is 2.45%.
There are no additional charges for keeping some of your investment portfolio as cash, and no penalties.
A spokesperson said that “Vanguard UK Personal Investor is intended as an investment platform, and as such while investors can of course hold cash on the platform, we do not offer cash or savings accounts or products.”
Fidelity Personal Investing
Fidelity pays 3.35% on cash balances in ISAs, junior ISAs, investment accounts and cash management accounts.
It pays 3.5% interest on cash held in Sipps and junior Sipps.
Fidelity told MoneyWeek: “We pay a flat rate of interest, regardless of balance, which we feel is simpler as well as fairer to all our customers, including those with lower balances.”
It added: “Fidelity Personal Investing does not charge platform fees on cash.”
However, it does keep some of the interest from the bank(s) that it deposits the client money with to cover the cost of administering it.
Fidelity previously paid interest to clients annually, but now pays it monthly.
How to boost your interest rate
If you have some cash sitting in your investment account, chances are you're earning a rubbish interest rate (unless you're with Bestinvest - but even so, you could earn more by moving your money into a market-leading savings account).
The first thing to do is check if your investment platform also offers a savings service, as you'll almost definitely be able to get a higher rate by moving your cash into it. A growing number of platforms offer a savings service, including Hargreaves Lansdown, AJ Bell and Interactive Investor.
There are different savings accounts available - provided by banks and building societies - but your cash remains with the investment platform. This means it should be easy to transfer it back into your investment account, stocks and shares ISA or pension when you're ready to invest it.
Alternatively, if you have a lot of money sitting in cash in your investment portfolio, and you don't plan to invest it any time soon, it could make sense to withdraw the money and put it in a separate savings account. This could be an easy-access savings account, cash ISA or a longer-term product like a one-year savings bond.
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