Rant: The cash interest débacle

This month’s article is not new news, but it’s something that’s been bubbling away for a while and I thought it was time to address it. Read on for more information – and do get in touch if you have any comments or questions.

For the past few years, interest rates were so low that the level of interest which people earned on their cash savings didn’t make much impact. However, now that interest rates are nearer 4% or 5% for cash savings accounts with instant access, it’s starting to be important.

What you need to know is that the platforms where you invest your cash are now earning interest on it. However, not all of them are passing it on.

For example, Hargreaves Lansdowne, the business-to-consumer wrapper platform we’ve called out before, is keeping the interest to itself on all the cash they have under investment. The surge in margin from cash accounts recently helped Hargreaves make total revenues of £350m, a rise of 20%. Source: Citywire

Also, Nucleus (an adviser platform we’ve never used) made £24 million profit last year. According to their accounts, this was all earnings on cash investments, not profits on the normal activities of their platform. Source: Citywire

What this means to you

Every year, we do a high-level review of all the investment platforms out there. One of the questions we ask is: “Do you pay interest on client cash?”

Transact and Fundment are the two providers we typically use – and both answered YES to this important question.

In fact, the interest rate that Transact pays on cash (at the end of May) was the equivalent of 4.0058% p.a. – probably the highest rate among investment platforms.

Fundment is currently paying 3% on cash held on the platform.

Bad capitalism

I believe Transact and Fundment hold the moral high ground. They are there to provide client services, not rake off client cash. Every night, they use treasury services to manage cash actively across the banks for client benefit, not to feed their shareholders.

But the markets don’t like it. Transact floated on the stock market a few years ago, and its share price has taken a big hit because analysts think they are being too generous by paying client cash interest.

It seems the markets are happy to rip off clients in this regard!

The FCA is reviewing the situation, but the outcome is not yet known. If anything changes, we’ll let you know.

Meanwhile, to help plan where best to invest your hard-earned funds, do get in touch.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100