Hargreaves makes £91m from interest but savers get nothing

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

Savers are signing up to “guaranteed losses” if they retain cash with the firm, experts said, and should transfer the money not needed for investing into more conventional bank or building society savings accounts.

Hargreaves 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 in Isas, pensions and trading accounts.

This followed cuts to the Bank of England’s Bank Rate, which is now just 0.1pc. The Bank is trying to stimulate the economy in the wake of coronavirus by making cheap credit available to businesses.

Cuts to the official rate hit cash savers hard as firms such as Hargreaves reduced what they paid out. This helped the company to make almost 25pc more from customers’ cash than it did the previous year 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 invest and more people holding on to cash during a volatile six months for global stock markets. The average customer now has 12pc of their savings in cash.

The Financial Conduct Authority, the City watchdog, has been warning investors of the detrimental effect that leaving cash in Isas and pensions can have on savings. Its study discovered that a third of pensioners who had not taken advice left their retirement pots solely in cash in accounts for which they were charged or on which they received little or no interest.

Mike Barrett of the Lang Cat, a consultancy, 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 providers 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, however.

Brian Dennehy of Dennehy Weller, an advisory firm, said more investors were holding cash as they looked for protection from choppy markets. “Holding cash with a broker is not going to protect you against inflation, so investors should be made aware of the risks,” he said. 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 broker added that it also offered a service by which it actively found better rates from banks and building societies for a customer’s cash.

The best easy-access savings deal is with NS&I, which pays 1pc. The government-backed provider also offers an income bonds account that pays 1.16pc.

The best rates on fixed-rate bonds are with OakNorth Bank, which pays up to 1.33pc for a four-year fix.