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 5.45%.
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).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Some pay measly rates of 1.5%, 1.65% or 1.75%. The most generous rate is currently 4.35%. This is despite a base rate of 5.25%.
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 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 increased its rates in August. It previously paid 2.25% interest on cash balances up to £49,999; this has now been increased to 2.5%.
For those with cash balances between £50,000 - £99,999, a higher rate of 2.7% (previously 2.45%) is paid; cash balances above £100,000 attract a rate of 2.9% (previously 2.65%).
This applies to all products, such as general investment accounts (GIAs), ISAs and Sipps.
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 5.25% 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 3.7% on sums above £100,000. On fund and share accounts, the rate varies between 1.5% and 2.2%, depending on the size of cash holding.
For Sipps and junior Sipps, the platform pays better rates. Customers earn 3.45% on the first £9,999 held as cash, rising to 4.2% for balances of more than £100,000.
A spokesperson said: “HL cash accounts have always been interest-bearing and after more than 14 years of being in the doldrums, interest rates have now normalised, which has enabled us to pass more interest onto clients.”
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 4.72% for easy access and 5.15% 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 Coventry Building Society.
Interactive Investor
Interactive Investor (ii) boosted the rates of interest paid on certain cash balances held in ISAs, Sipps, and trading accounts on 1 February.
For ISAs and junior ISAs, the rate rose from 1.75% on the first £10,000 to 2%. Interest paid on the value between £10,000.01 and £100,000 remains the same at 2.75%, as does the interest on the value between £100,000 and £1,000,000, which continues to be paid at 3.75%. For £ ISA balances above £1,000,000, a new tier pays 4.75%.
Sipps saw a 0.25% boost, taking the rate to 3% on balances of up to £10,000, and to 3.75% for balances up to £100,000. The rate of interest on the balance between £100,000 and £1,000,000 remains unchanged at 4%. For £ balances in Sipps above £1,000,000 Interactive Investor has introduced a new tier paying 4.75%. For US $ balances above £1,000,000, this tier will pay 5%.
Trading accounts now pay 2% on the first £10,000. Amounts up to £100,000 receive 2.75%, and anything over £100,000 receive 3.75%. For £ balances above £1,000,000 a new tier pays 4.75%. For US $ balances above £1,000,000 the rate is 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 4.96%, or 4.52% 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 increased its rates on 5 April 2024. It now pays 2.5% (previously 1.95%) 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 now 2.85% for amounts between £10,000 and £100,000 and 3.5% above £300,000.
Similar to Hargreaves and ii, there is a higher interest rate for cash holdings within Sipps. Cash balances of £10,000 or below earn 3.2% while bigger sums earn 3.7% (previously 3.45%) up to £100,000 and 3.95% 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 to 4.45% on balances worth more.
AJ Bell offers a Cash Savings Hub paying rates as high as 5.06%. 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 4.35%. 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 2.6%, after the investment giant made several rate hikes last year. It was previously 2.45%, and before that it was 2.2%.
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 [at the 2.6% rate], we do not offer cash or savings accounts or products.”
Fidelity Personal Investing
Fidelity repeatedly raised its interest rates last year. It now pays 3.35% (up from 2.75% last summer) on cash balances in ISAs, junior ISAs, investment accounts and cash management accounts.
It pays 3.55% interest (previously 3.25%) on cash held in Sipps and junior Sipps.
It 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.
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
-
Review: Three magnificent Beachcomber resorts in MauritiusMoneyWeek Travel Ruth Emery explores the Indian Ocean island from Beachcomber resorts Shandrani, Trou aux Biches and Paradis
-
The outlook for stocks is improvingThis is the best of times for investors, says Max King. Global risks are receding, but few have noticed.
-
The building blocks for an income strategy: resilience, growth and diversificationAdvertisement Feature Iain Pyle, Investment Manager, Shires Income plc
-
FTSE 100 dividends: the top 10 yieldsTips We look at the 10 stocks with the best dividend yields in the FTSE 100 and discuss if you can depend on these blue-chips for income.
-
Can a woman deliver you better returns?Tips Women often make better stock pickers than men, delivering stronger returns for investors - but with fewer females managing funds, how can you make sure you take advantage of the feminist touch when picking funds? Kalpana Fitzpatrick on how to filter funds run by women and why it matters.
-
Flat fees vs percentage fees - are you paying too much for your investments?Analysis We investigate whether it’s better to choose an investment platform with flat fees, or whether percentage charges could work out cheaper.
-
Fund platform launches low cost £4.99 a month service for small investors - we see how it comparesAdvice Aimed at investors with small investment pots of £30k or less, fund platform interactive investors has launched a low costs service - but is it any good and how does it compare to rivals?
-
Fundsmith Equity: a setback for a high-quality portfolioAdvice Rupert Hargreaves explains why investors should focus on Fundsmith Equity’s process rather than its losses
-
Should you overpay your mortgage or invest?Advice As interest rates remain high, homeowners with spare cash may be wondering if they should overpay their mortgage. Or is investing a better option? We explain which one might be best for you
