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Hargreaves cash service offers little for rate chasers

Online stockbroker says cash savings service is targeted at 'time savers, not the rate chasers' as banks reserve best deals for direct customers.

 
Hargreaves cash service offers little for rate chasers
 

Hargreaves Lansdown (HRGV) is trialling the launch of its hotly-anticipated cash savings service, but if you are the type of saver always on the lookout for the best rates on offer, it's probably not for you.

The online stockbroker is touting its 'Active Savings' proposition as a service for the 'time savers, not the rate chasers', and the rates on offer on the platform, currently being trialled among a select group of clients, bear that out.

Six banks are offering fixed-term deposits on the platform at this stage: Aldermore (ALD), United Trust, Shawbrook, Metro (MTRO), Goldman Sachs and Coventry Building Society.

Each bank is offering accounts with terms varying between six months and five years, with rates of between 0.85% and 1.95%.

But where those banks offer the same product directly to customers, the rate is higher. The biggest disparity is between Aldermore's one-year fixed term savings account, paying 1.7% to direct customers but 1.25% to those who access the account through Hargreaves Lansdown.

Bank Term HL rate Direct rate
Aldermore Six months 0.85% n/a
United Trust Six months 0.85% n/a
Shawbrook One year 1.30% 1.65%
Aldermore One year 1.25% 1.70%
United Trust One year 1.25% 1.65%
Metro One year 0.95% 1.20%
Goldman Sachs One year 0.67% n/a
Metro 18 months 1.05% 1.30%
Goldman Sachs 18 months 0.81% n/a
Coventry BS 23 months 1.30% 1.55%
Metro Three years 1.25% 1.50%
United Trust Five years 1.95% 2.30%

This difference in rates offered is down to the way the service is paid for. Hargreaves Lansdown customers will not pay a platform fee to use the service, with the online stockbroker instead securing revenue from a fee from the banks, typically of around 0.25%.

This harks back to Hargreaves Lansdown's previous business model with funds, when it received a cut of fund charges, before the financial regulator banned commission payments from fund groups, forcing platforms to charge their users an explicit fee.

Banks recoup costs

Shore Capital analyst Paul McGinnis said: 'The banks using the platform have a commercial decision to make as to whether they are willing to offer Hargreaves Lansdown clients savings rates equivalent to the rates that customers achieve by going directly to those banks or offering a slightly worse rate to recover the distribution costs paid to Hargreaves Lansdown.'

So far it appears banks are doing the latter. 'Some of [the rates] are not quite where we would want them to be long term,' said a Hargreaves Lansdown spokesman.

'As we start to scale up, we expect the market place to become more competitive.'

But he added that the service was aimed at 'time savers, not the rate chasers', targeting the 80% of savers' money held in easy access accounts paying paltry rates of interest.

'Ultimately we never expected the service to offer the best buys - it's not that kind of service,' he said. 

'It depends what type of saver you are - if you are going to chase a rate, this isn't for you.'

Launch of the service has been hotly-anticipated by some investors, who see the potential for making inroads into the huge cash savings market as providing the next phase of growth for a business that has established its dominance in the DIY investor market.

Hargreaves had originally intended to debut the service 18 months ago, but the launch has been persistently pushed back, amid a heavier-than-expected technology workload.

Trial launch

A screenshot from the trial service. Source: Hargreaves Lansdown

The trail was launched on 22 December to a select band of clients, which Hargreaves aims to build to 1,000 before a full launch, although no firm date has been given.

Chief executive Chris Hill said the service was 'the cash version of what we've done for funds', with an emphasis on ease-of-use, and cutting out the need to present documents like a passport or utility bill before opening an account.

Hill said he was among the users of the service, and had opened three accounts 'in less than 10 minutes', as well as his 82-year-old mother.

He added that the scheme was still in its 'early days', with banks still getting used to where to pitch rates.

Goldman Sachs' inclusion as one of the six banks on the platform is meanwhile an intriguing twist, as a precursor to the US investment banking giant's reported plan to take on UK retail banks.

'This is where we have an advantage,' said a Hargreaves spokesman. 'What we can give them is distribution to over a million clients.'

5 comments so far. Why not have your say?

Mark Stringer

Feb 11, 2018 at 09:48

"Online stockbroker says cash savings service is targeted at 'time savers, not the rate chasers' as banks reserve best deals for direct customers."

Or in other words "we can make more from you by offering lousy rates knowing that you are a customer holding investments and are unlikely to move".

Got to say that I have been with them for many years, but their systems are becoming slow and it is difficult to obtain a timely and accurate valuation of shares held. A delay of up to 20 mins is totally unacceptable.

The current argument might be that the increase in activity due to the "correction" but that doesn't explain the prior issues.

Invest in more servers then is my option.

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Mark Stringer

Feb 11, 2018 at 09:51

I love the phrase "rate chasers" when applied to people seeking a miniscule return on deposits yet it would be rejected if we said "profit mongers" to those making millions from our activity.

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Philip K

Feb 11, 2018 at 12:20

If you hold cash in a SIPP with HL, you receive a pitiful rate of variable interest for the privilege in the region of 0.05-0.10 % and they have not offered fixed rates for some time.

Some investors will have increased the proportion of cash held as stock markets valuations started to look stretched and HL have missed an opportunity to put that cash to work and earn both themselves and their clients some better return.

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GPGJ via mobile

Feb 11, 2018 at 13:37

If you want flexible access forget it. They don't offer this - yet. If they are serious about offering a competive cash savings environment they need to expand the offering.

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deeply realistic

Feb 19, 2018 at 16:03

I'm with HL. A better buy for 6 months or more is a zero div preference share that accumulates at 5%. Even with buying expenses one is still better off. I suppose there is some risk but it won't tank.

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