- Vanguard has recently stopped charging customers for cash
- Best and worst platforms for holding cash
Various investment platforms still do not pay interest on cash balances held by customers, despite a new regulatory focus on getting them to pass on the higher interest rates that they earn.
In December 2023, the Financial Conduct Authority (FCA) told platforms and personal pension providers to ensure that the level of the interest rate they were retaining on cash balances represented “fair value” for the customers.
It also demanded that they stop the practice of “double dipping”, where some platforms both retained part of the interest rates they received on cash and charged customers for it.
“This practice may be particularly likely to confuse consumers and we do not consider that it demonstrates that a firm is acting in good faith, that is honest, fair and open dealing, and acting consistently with the reasonable expectations of customers,” said FCA executive director of consumers and competition, Sheldon Mills, in December.
The deadline for platforms to make changes and address the concerns in the FCA letter was 29 February.
Platform differences
Investors’ Chronicle has looked at the treatment of cash by a range of popular retail investment platforms. The results were mixed.
Among the main platforms on the market that practised double dipping at the time of the FCA letter were Vanguard and Willis Owen. Vanguard charged 0.15 per cent a year on all assets including cash, and then paid an interest of 2.6 per cent on cash balances. But the platform told Investors’ Chronicle it stopped charging for cash on 28 March, “in line with FCA expectations”.
Willis Owen still charges its annual service fee, which starts at 0.4 per cent for the first £50,000 and gradually decreases on higher amounts, on all assets including cash. It then pays a 2.46 per cent interest rate on cash balances.
A Willis Owen spokesperson said: “We operate a two-tiered pricing structure, one for customers investing on our platform and another to cover the costs of managing cash on the platform. We believe this is fair as investment platforms are designed for active long-term investment, not holding cash. It would be unfair to pass the costs of moving cash to all customers as most do not use our platform for this.”
The spokesperson added that the platform sends regular communications to customers that might be holding more cash than necessary to cover fees to let them know that doing so may not offer thebest value.
Meanwhile, various other platforms do not pay interest on cash. Halifax Share Dealing and iWeb, both part of Lloyds Banking Group, only pay interest on self-invested personal pensions (Sipps),for example.
Change afoot
Holly Mackay, founder and chief executive of Boring Money, said that the FCA’s focus on the issue “is a wake-up call for investors that there are generally better cash options available and leaving large sums in a platform account is rarely a good idea”, although she added that there have been improvements across the board recently.
Perhaps the most high-profile change as a result of FCA pressure came from AJ Bell. At the end of 2023, the platform announced increases to the interest rates it paid on cash held in its drawdown Sipp and on cash balances above £100,000 in Isas and accumulation Sipps. The changes became effective on 1 April.
Among the platforms that pay the highest interest rates on cash is Bestinvest, which currently pays 4.45 per cent on all cash held in any of your accounts. Trading 212 advertises a competitive 5.2 per cent on any uninvested cash, but this is achieved by investing the money in “a mixture of products and vehicles such as qualifying money market funds, time deposits and current accounts”, so part of it is actually invested, albeit in very low-risk funds.
In some cases, customers need to make sure they have opted in to receive interest on the cash they hold on their platform. For example, Barclays Smart Investor does not pay any interest on cash held in its general investment account, but offers a feature that moves customers’ cash to an “investment saver” each day, so it earns interest when it is not invested.
