The Financial Conduct Authority set a deadline of today (29 February) for investment platforms to finalise changes to make their treatment of their customers’ cash interest fairer.
Stocks and shares Isas and general investment accounts are not intended as a home for your cash savings, but often you’ll be required to have some uninvested cash on hand to pay account fees, or you’ll have some if you are moving investments.
Your cash will earn the investment platform money - the question is whether you get to see any of it.
Here, Which? takes a look at 14 of the biggest stocks and shares Isa providers and their cash interest rates, to find out where investors are being short-changed.
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Why is the regulator concerned?
The Financial Conduct Authority (FCA) wrote to platforms in December 2023 with concerns on how they dealt with uninvested cash that customers were holding in investment accounts.
They were particularly concerned with the practice of ‘double dipping’, where platforms charge a fee for customers to hold cash in their accounts while also retaining the interest they build.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: ‘Rising rates mean greater returns on cash. Investment platforms and SIPP operators need now to ensure how much of the interest they retain and, for those who are double dipping, how much they’re charging customers holding cash, results in fair value.
‘If they cannot make that case, they need to make changes. If they don’t, we’ll intervene.’
The warning comes off the back of new Consumer Duty rules which mean that financial firms must prove they are providing good value to consumers, among other things.
The definition of what makes something ‘good value’ is not specifically defined and, as such, there is no clear definition of what is an unacceptable interest rate on cash, when combined with other factors like platform fees.
Have rates got any better?
Despite this warning in December 2023, most platforms have made minimal changes - or none at all.
Some of the biggest changes come from platforms who offered the very worst interest rates before the FCA intervened.
Barclays Smart Investor didn’t offer any interest on cash when we checked in October 2023, and they still offer nothing to cash held in a general investment account - though they now offer 1.65% for cash in Isas.
Santander Investment Hub has upped their rate from a dismal 0.2% in October 2023 to 2.2% today.
AJ Bell | 1.95% | 1.95% | 0.00% | No |
Aviva | 4.47% | 4.53% | 0.06% | Yes |
Barclays Smart Investor | 0.00% | 1.65% | 1.65% | No |
Bestinvest | 4.35% | 4.35% | 0.00% | No |
Charles Stanley Direct | 2.50% | 2.50% | 0.00% | No |
Fidelity | 3.35% | 3.45% | 0.10% | No |
Freetrade* | 3.00% | 5.00% | 2.00% | Fixed fee |
Table notes: Table correct as of 29 February 2024. *For the Plus tier, costing £11.99 a month or £119.88 a year, and only on amounts up to £3,000. The free tier now pays 1% on amounts up to £1,000.
In 'Do they charge fees on cash?', the answer 'Fixed fee' means the question does not apply as the fee is the same regardless of the amount of cash held.
Who offers the best rates?
Freetrade has today introduced the highest rate at 5% but only to Plus customers and only on amounts up to £3,000. This means that if you have £1,000 of uninvested cash, you’ll get 5% interest in a year but also pay £120 for a year of Plus - so it’s probably not worth upgrading just for this interest rate.
There are a few platforms who pass on most or all of the interest accrued on cash to their customers. Aviva, Bestinvest and Moneybox offer the highest cash interest rates of the platforms we surveyed at 4.53%, 4.35% and 3.8% respectively.
Aviva offers the best rate, but they also are one of few platforms whose account fees apply to cash holdings.
This means that you’d gain 4.53% interest and pay 0.4% in platform fees - leaving you with an effective gain of 4.13%, which still leaves it one of the best rates on an investment platform, but now worse than Bestinvest's.
- Find out more:Best investment platforms 2024
Who offers the worst rates?
HSBC and Halifax Share Dealing offer absolutely no interest on uninvested cash. Halifax Share Dealing charges a fixed account fee so you are not charged more or less depending on the amount of cash you have in the account, while HSBC also don’t charge fees on cash balances.
It’s generally not wise to hold huge amounts of cash in your stocks and shares Isa because, as we’ve illustrated, you’re not going to get the best rates. But some platforms only offer their best rates on huge amounts of cash.
With AJ Bell, Charles Stanley Direct and Hargreaves Lansdown, you can only access their best interest rate if you have more than £100,000 in cash in your account - and even then they don’t match the rates of Aviva, Bestinvest or Moneybox.
For Interactive Investor users, you’d need a whopping £1 million in cash to benefit from their highest rate of 4.75% - while users with less than £10,000 will only see 2% of their cash’s interest.
The only platform other than Aviva to charge fees on cash was Vanguard, who offers a far worse interest rate of 2.6% too.
- Find out more: Compare investment platform fees and charges
Where could you get better interest on your cash?
If you want to keep your cash, rather than investing it, you’d be better off moving it to a savings account or cash Isa.
Many investment platforms themselves have savings platforms which offer much better rates on cash. For example, the highest interest rate available on a one-year fixed bond of 5.15% is available through Emirates NBD on the Hargreaves Lansdown Active Savings platform, according to comparison site Moneyfacts.
At the time of writing, the highest rate for an easy access account is 5.12% at Beehive Money (powered by the Nottingham Building Society), and the highest rate on a one-year fixed cash Isa is 5.03% at Shawbrook Bank.
- Find out more: Best savings accounts 2024
Note:this article was updated to reflect changes in Freetrade's interest rates that went live after our article was first published, but before the deadline passed on 29 February, and to correct the figure for the effective gain of interest for Aviva
