Hargreaves makes millions in interest off savers' cash while customers get nothing

Britain’s biggest broker Hargreaves Lansdown has made tens of millions of pounds from interest earned via its customers' cash savings.

The company said it received more than £91m in interest in the 12 months to June 30 just from cash sitting in investors' accounts. It pays 0pc interest on cash to its customers across its Isas, pensions and trading accounts.

This followed cuts to the bank rate by the Bank of England – which is down to just 0.1pc. The Bank is trying to stimulate the economy in the wake of coronavirus by making cheap credit available to cash-strapped businesses.

Cuts to the official rate hits cash savers hard as account providers reduced what they pay out. This helped Hargreaves make almost 25pc more from customer cash than it did in 2019 and pushed the margin it makes on cash interest up to 0.75pc.

Hargreaves said it expected that figure to drop to between 0.4pc and 0.5pc in the next year.

The increase was also driven by more customers signing up to save and invest with the broker and more people holding onto cash during a volatile six months for global stock markets. The average customer now has 12pc of their savings held in cash.

But savers are signing up to “guaranteed losses” if they retain cash with the broker, experts said. They should transfer the money not needed to invest into more conventional banks or building society savings accounts.

The harm to consumers’ savings is something the financial regulator, the Financial Conduct Authority, has been concerned about for several years.

From February 2021, firms will be required to inform customers of the dangers of hoarding cash in Isas, pensions and trading accounts. This was after the FCA discovered a third of pensioners who had not taken advice left their retirement pots solely in cash.

Mike Barrett of consultants The Lang Cat said: “Holding lots of cash with a broker or Isa provider represents poor value for money, especially in the long term.

“This is down to the killer combination of low interest rates and providers either charging savers to hold cash or paying a rate below the bank rate.

"You are signing yourself up to a guaranteed loss if you hold money this way when you account for inflation. Cash in such accounts really should only be held for a short while.”

Other brokers including AJ Bell and The Share Centre also retain the interest earned by customers' cash.  Some brokers do pass on the full rate of interest, however.

Brian Dennehy of advisers Dennehy & Weller said more investors were holding cash as they looked for protection from choppy markets.

“Holding cash with a broker is certainly not going to protect you against inflation so investors need to be made aware of the risks,” he added.

A spokesman for Hargreaves Lansdown said: “Our investment service cash account is an easy-access trading account and the interest rate payable reflects this."

The best easy-access savings deal on offer today is with NS&I, which is paying out 1pc. Its income bonds account pays out 1.16pc.

Hargreaves Lansdown does offer a service where it actively finds better rates from banks and building societies for a customer's cash.