Trading212 5.2% APY

the_Gasman21

Trading212 now offers 5.2% APY interest on uninvested cash in their trading accounts, with instant access.

Shortly they are going to launch a debit card linked to this account, allowing the account to effectively be used as a current account with 0.5% cashback on all purchases. It will also allow foreign currency debit card purchases at the interbank rate plus 0.15% commission, pretty useful when travelling.

This all seem almost to good to be true to me!  :-)

What do you think? Is it too good to be true? Is there a catch?

They are regulated by the FCA, and I believe the £85,000 guarantee applies. Yet they also say the cash is invested in Qualifying Money Market Funds, and is at risk. I'm not a financial expert, and I have no idea what a QMMF is, or how big the risks are. Is capital at risk, or just the interest? This seems to be blurring the lines between investment and bank interest in a way that is confusing (to me at least)!

Millyonare

Looks like a teaser rate to draw in an early wave of big cash and generate headlines. As long as one doesn't exceed £85k, it should be safe (assuming FCA regulation for the account when it starts up).

Used to love the Trading 212 app. But since they stopped showing live buy-sell prices, its usability has deteriorated a lot. You're effectively buying stocks "blind" now.

wmb194

Millyonare said:

Looks like a teaser rate to draw in an early wave of big cash and generate headlines. As long as one doesn't exceed £85k, it should be safe (assuming FCA regulation for the account when it starts up).

Used to love the Trading 212 app. But since they stopped showing live buy-sell prices, its usability has deteriorated a lot. You're effectively buying stocks "blind" now.

I just get the live prices from somewhere else. The 0.15% FX is too good to pass up.

At the moment c.5% is roughly the going rate on short dated bonds so it sounds about right e.g., IIRC recent one month (UK) Treasury bill auctions have been c.5.1%.

masonic

the_Gasman21 said:

They are regulated by the FCA, and I believe the £85,000 guarantee applies. Yet they also say the cash is invested in Qualifying Money Market Funds, and is at risk. I'm not a financial expert, and I have no idea what a QMMF is, or how big the risks are. Is capital at risk, or just the interest? This seems to be blurring the lines between investment and bank interest in a way that is confusing (to me at least)!

Your capital would be at risk, but it would take something pretty spectacular for a high credit rating government to default on its debts. People can already invest in money market funds within a trading account, and several forumites have done just this for money they didn't need instant access to. There is some risk associated with using this account as a current account, where you'd normally expect your money to be available on demand, whereas funds typically trade once per day and ETFs trade when stockmarkets are open (and both require a couple of working days 'settlement' until the proceeds from a sale are received). Time will tell how T212 address liquidity issues.

wmb194

the_Gasman21 said:

Trading212 now offers 5.2% APY interest on uninvested cash in their trading accounts, with instant access.

Shortly they are going to launch a debit card linked to this account, allowing the account to effectively be used as a current account with 0.5% cashback on all purchases. It will also allow foreign currency debit card purchases at the interbank rate plus 0.15% commission, pretty useful when travelling.

This all seem almost to good to be true to me!  :-)

What do you think? Is it too good to be true? Is there a catch?

They are regulated by the FCA, and I believe the £85,000 guarantee applies. Yet they also say the cash is invested in Qualifying Money Market Funds, and is at risk. I'm not a financial expert, and I have no idea what a QMMF is, or how big the risks are. Is capital at risk, or just the interest? This seems to be blurring the lines between investment and bank interest in a way that is confusing (to me at least)!

Trading212 explains it here: https://helpcentre.trading212.com/hc/en-us/articles/15475153380637-Higher-interest-rates-on-cash

For the most part your money is invested in very short dated bonds so there is a small risk attached to the capital.

Hoenir

the_Gasman21 said:

Trading212 now offers 5.2% APY interest on uninvested cash in their trading accounts, with instant access.

Seems you have to (opt) invest it in order to receive interest rather than leave it in actual cash. 

This all to do with the clampdown by the FCA.   Platforms previously could place clients cash on overnight deposit and pocket the cash. Interesting workaround.  

callum9999

Millyonare said:

Looks like a teaser rate to draw in an early wave of big cash and generate headlines. As long as one doesn't exceed £85k, it should be safe (assuming FCA regulation for the account when it starts up).

Used to love the Trading 212 app. But since they stopped showing live buy-sell prices, its usability has deteriorated a lot. You're effectively buying stocks "blind" now.

I don't know if it's a necessarily a teaser rate, it's more an investment disguised as a savings account - lots of investment apps around the world have started doing this recently.

You aren't paying in to a savings account so I'd assume the £85k protection won't be that useful. Doesn't that only cover a scenario where T212 itself fails?

There's a chance you could lose money, but the places they invest in are so stable that it's incredibly unlikely. 

Millyonare

A further look says there is a slight risk to one's ~£85k cash. Due to the QMMF angle, as above. This is a good explainer.

https://becleverwithyourcash.com/trading-212s-interest-on-savings-is-it-safe/

Having looked into it some more, I'm going to give the T212 card a swerve. It's possible to get similar forex rates with other banks (like First Direct), while 5% rates are still available elsewhere (such as Paragon).

pecunianonolet

How are the returns treated? Will Trading 212 report to HMRC or will the underlying banks (Barclays, Morgan Stanley) they "invest" the cash with report this as interest or will it be treated as CG and you can use your CGT free allowance as technically your returns are coming from QMMF's?

InvesterJones

pecunianonolet said:

How are the returns treated? Will Trading 212 report to HMRC or will the underlying banks (Barclays, Morgan Stanley) they "invest" the cash with report this as interest or will it be treated as CG and you can use your CGT free allowance as technically your returns are coming from QMMF's?

Returns from QMMFs are likely treated as interest anyway as they're >60% cash/fixed interest securities.

pecunianonolet

InvesterJones said:

pecunianonolet said:

How are the returns treated? Will Trading 212 report to HMRC or will the underlying banks (Barclays, Morgan Stanley) they "invest" the cash with report this as interest or will it be treated as CG and you can use your CGT free allowance as technically your returns are coming from QMMF's?

Returns from QMMFs are likely treated as interest anyway as they're >60% cash/fixed interest securities.

Ok, is there any HMRC guidance on it? Would this be reported by trading 212 or the respective bank where the assets go? Trading 212 claims they are not a bank so if any returns need to be reported via self assessment it would make it less attractive, not signing up for self assessment ust for that.