Investment platforms are raking in substantial profits by keeping customers’ savings interest for themselves instead of passing it on. Market leaders like Hargreaves Lansdown, AJ Bell, and Interactive Investor are earning significant sums by placing customers’ cash in low-risk savings accounts where it accrues interest. They then keep a portion of this interest before distributing it to customers. Hargreaves Lansdown, for example, made an impressive £268.7 million using this method last year. However, investment analysts reveal that platforms don’t have to engage in clever investments or carefully select savings accounts to earn these substantial profits. They simply take advantage of accounts that offer more than 5% interest, which are not accessible to ordinary savers. Financial services analyst Ben Williams explains that platforms prefer to keep customers’ savings in these accounts because they’re easily accessible, rather than investing them elsewhere. In this way, investment platforms can easily pocket more than 5% interest before passing on the rest to customers. The amount of interest passed on to savers varies depending on the platform, size of the deposit, and type of account. While some rates are more generous than others, none come close to the 5.18% that platforms are enjoying themselves. Hargreaves Lansdown, for example, retains an average net interest margin of 1.92 percentage points from customers’ interest. This means that if a customer had £10,000 in a Hargreaves Lansdown account, it would earn around £502 on average in a year. Hargreaves Lansdown would then give the customer £310 of that, keeping £192 for itself. The company has no intention of reducing its cut of savers’ interest, even if rates drop. It plans to retain a margin of 1.8 to 2 percentage points from customers’ interest, regardless of the base rate. While customers might see their interest payments decrease, Hargreaves Lansdown will continue to benefit. Investment platforms typically separate savings platforms from investment accounts, which can make it difficult for investors to move their cash. However, some platforms offer savings accounts that provide competitive rates. For example, Hargreaves Lansdown’s Active Savings account pays 4.54% interest. These accounts are more lucrative for customers but less profitable for platforms. It may become easier to switch between savings and investments within the tax-free wrapper of an ISA or SIPP in the future. However, it remains to be seen whether platforms will enable customers to do this, as they currently generate significant profits from the interest rate gap. In the meantime, customers should be aware of this stealth charge on their savings.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
