Many investment platforms have cut the interest rates they pay on cash balances, with customers receiving rates that are far below the Bank of England base rate – and also below the best savings accounts.
The top easy-access savings account pays 4.75% right now, while the market-leading one-year savings account pays 4.6%.
Platforms have been busy slashing interest rates following several cuts to the Bank rate in recent months. The Bank rate is currently 4.5%, after it was lowered from 4.75% on 6 February.
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While reducing platform cash rates when the Bank rate is reduced is understandable, some of the rates on offer are particularly measly, and seem to be short-changing investors who have uninvested cash on investment platforms.
We asked nine investment platforms and apps how much interest they pay on cash holdings, whether in an investment account, stocks and shares ISA or self-invested personal pension (Sipp).
Some pay rubbish rates below 2%. The most generous rate is currently 4.5% – but this is something of an outlier.
The Financial Conduct Authority (FCA) has previously written 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 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 may park their money in cash as they rush to use up their pension or ISA allowance before the end of the tax year, and decide how to invest later.
We outline how much interest investors earn on nine popular platforms and apps, 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, investment accounts and Sipps.
It then started paying up to 1.65%, as part of wider changes on the investment platform, which has also simplified its fee structure.
Barclays has now changed these interest rates, so that it only pays 1.65% on its Sipp. It pays just 1.25% on its investment ISA and Investment Saver.
It continues to pay zero interest on its investment account, 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".
The bank adds: "We may receive bank interest on client money held in Client Money Bank Accounts. This will be retained by us and not paid to you. However, we may pay you a contractual rate of interest on your client money at rates determined by us and set out on our website."
The interest is paid on the first day of each month, based on the cash held in the account the previous month.
Charles Stanley Direct
Charles Stanley Direct cut its rates last month. It now pays 2% 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 2.4% is paid.
Hargreaves Lansdown
The UK’s largest investment platform, Hargreaves Lansdown, has also cut its interest rates, and will lower them again on 10 March.
It currently pays 2.5% on the first £9,999 held as cash in a stocks and shares ISA, junior ISA or lifetime ISA, gradually rising to 3.25% on sums above £100,000. On fund and share accounts, the rate varies between 2% and 2.3%, depending on the size of cash holding.
For Sipps and junior Sipps, the platform pays better rates. Customers earn 3% on the first £9,999 held as cash, rising to 3.7% for balances of more than £100,000.
However, these rates will all be chopped next week. If you have a cash balance of say £5,000 in a stocks and shares ISA you will earn just 2.3% (down from 2.5% currently). Someone with the same cash balance in a fund and share account will get just 1.75% interest (down from 2%).
Hargreaves Lansdown 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 4.26% for easy access and 4.45% 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.”
Interactive Investor
Interactive Investor (ii) cut the rates of interest paid on cash balances held in ISAs, Sipps, and trading accounts last month.
For ISAs and junior ISAs, it now pays 1.5% on the first £10,000 and 2% on the value between £10,000.01 and £100,000.
The rate is 3% on the value between £100,000 and £1,000,000 and 3.5% on anything above that.
Sipp users can get 2.25% on balances of up to £10,000 and 3% for balances up to £100,000. The rate of interest on the balance between £100,000 and £1,000,000 is 3.25%, rising to 3.5% for anything above £1,000,000.
Trading accounts now pay between 1.25% and 3.5% depending on the size of the cash balance.
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 4.25%, or 4.31% for those locking their money up for 12 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 cuts its rates at the start of March. It now pays 1.8% on cash balances of £10,000 or below, in an ISA, junior ISA or lifetime ISA. Last year it paid 2.3%.
For those with larger cash balances, the rate is 2.15% for amounts between £10,000 and £100,000 and 2.8% above £100,000.
Cash balances in dealing accounts attract interest of 1.55% or 1.75% depending on the size.
Similar to Hargreaves and ii, there is a higher interest rate for cash holdings within Sipps. Cash balances of £10,000 or below earn 2.5% while bigger sums earn 3% up to £100,000 and 3.25% above that.
Sipp customers in drawdown with cash balances of below £10,000 are now receiving interest of 2.75%, rising to 3.25% up to £100,000 and 4% on balances worth more.
AJ Bell offers a Cash Savings Hub paying rates as high as 4.45%. 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.
Dodl
The beginner-focused investing app Dodl pays a higher (and simpler) interest rate than its parent company AJ Bell.
All cash in your investment ISA or Lifetime ISA that you have not yet invested earns 4.5% variable interest. This is down from the 5.09% it paid last year, but still a lot more than 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 – but it is worth considering if you’re a beginner investor.
Bestinvest
Bestinvest also offers a decent amount of interest, compared to its peers. And refreshingly, there is just one interest rate, making it easier to work out what you’ll earn.
Its current interest rate on cash is 3.73% (down from 4.2% last year). This applies to all accounts, whether it’s an ISA or Sipp.
“We believe this remains one of the most generous cash interest rates paid by any investment platform as it applies to any level of cash holding across all types of account held with us,” a spokesperson said.
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 has also fallen in recent months, from 2.45% to 2.2%.
The investment platform said: “We'll keep any extra interest we receive on your cash above the 2.20% we pay you. This is to cover our costs for managing your cash (for example, our banking costs). It also allows us to continue to develop our products and services.
“Any cash in your account will earn interest daily and will normally be paid into your account on the first working day of the month.”
The interest rate cut will be a blow to Vanguard investors who are also being hit by a minimum monthly fee, which came into effect last week.
Fidelity Personal Investing
Fidelity cuts its rates at the start of March. It now pays 2.95% on cash balances in ISAs, junior ISAs, investment accounts and cash management accounts.
It pays 3.05% interest on cash held in Sipps and junior Sipps.
Fidelity told MoneyWeek last autumn: “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 Dodl or Bestinvest).
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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