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The stockbroker paying 0pc interest on savings

Cash Savings Interest Rates Stockbroker
Cash Savings Interest Rates Stockbroker

Investment brokers are paying shareholders and pension savers “unfair” interest rates on cash balances as DIY investors struggle to fight off falling stock markets and the ero­ding impact of inflation on their wealth.

Interactive Investor, one of the country’s largest brokers, does not pay interest on cash in a stocks and shares Isa or a self-invested pension below £10,000.

Rivals Hargreaves Lansdown and AJ Bell pay a meagre 0.4pc and 0.15pc respectively on cash below £10,000 in stocks and shares Isas, far below the current Bank Rate and rates offered by easy access savings accounts.

Investors hold cash to pay fees and as a tactical move to guard against market falls or while they wait for an opportunity to go back into the market. Around £13 for every £100 held by stockbrokers is in cash.

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Holly Mackay of Boring Money, a consultancy, said investment brokers had got away with paying low rates on their customers’ cash for decades. Increases in the Bank Rate over the past 12 months, combined with stock market falls, had put them under the spotlight, she added.

Threadneedle Street has raised the Bank Rate seven times in the past year to 2.25pc. But Interactive Investor and AJ Bell have increased their interest rates on cash just twice in the same period.

Meanwhile, the average rate on an easy access cash Isa has more than tripled from 0.27pc to 1.11pc since the start of the year, according to the analyst Moneyfacts.

Brokers have failed to keep pace with the rest of the market, where saving rates move on a daily basis. At the start of October, the average rate for a cash Isa stood at 1.06pc.

“It is unfair for investors,” Ms Mackay said. “The £10,000 threshold at Interactive Investor seems arbitrary. None of the major brokers seems to be able to provide a satisfactory reason as to why their rates are so low.

“They make money through holding their customers’ cash. This has become even more important for them because there are margin pressures elsewhere in their businesses. Shares are falling and they are not making as much commission because their customers are trading much less frequently.”

Shares in all three brokers have suffered this year. Hargreaves Lansdown has lost 34pc of its value since January, while AJ Bell has lost 19pc. Abrdn, the asset manager that bought Interactive Investor in May, has fallen by 45pc.

In most cases, brokers pay higher rates on cash balances in self-­invested personal pensions. On cash balances under £10,000, Interactive Investor pays nothing, but AJ Bell and Hargreaves Lansdown pay 0.15pc and 0.45pc respectively.

However, those figures pale in comparison with an average easy access cash Isa.

If an investor had £9,999 in cash in a Sipp, it would earn nothing at Interactive Investor, £15 at AJ Bell and £45 at Hargreaves Lansdown each year.

But the same cash in an average easy access cash Isa would earn £111, or £200 in the current top-paying account, according to Moneyfacts.

Ms Mackay added that low rates were even more painful for Sipp investors, as market falls were likely to be pushing older savers to hold more cash than usual.

At the start of 2020, 10pc of assets held with brokers were held in cash but the figure stood at 13pc at the end of June, according to Boring Money.

Across all three brokers, rates improve the more cash that investors hold. The highest available rate is from Hargreaves Lansdown, which pays 1.26pc on cash balances over £100,000 held in Sipps.

Interactive Investor pays 1pc on money above its £10,000 threshold in a Sipp. AJ Bell offers 0.5pc on cash over £100,000 in a Sipp, 0.4pc on cash between £50,000 and £100,000, and 0.35pc on £10,000 to £50,000.

Hargreaves Lansdown pays the lowest rate to customers in its general investment account, where cash below £10,000 earns just 0.25pc.

A spokesman said: “We ensure that we protect clients, offer a great service and market competitive rates, actively tell them when they are holding too much cash for too long and encourage them to use our cash savings platform.”

An Interactive Investor spokesman said: “While cash held in customer investment accounts is revenue generating, the money we make on holding customer cash is set against the costs of ensuring safe custody and compliance with client money and assets regulations.”

The company added that customers could also invest in cash funds, which would probably pay higher rates of interest. On average, cash funds have returned just 0.4pc since the start of the year, according to the data provider FE Fundinfo.

An AJ Bell spokesman said it kept its cash rates under constant review and expected to increase them.