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Rate rises will help Hargreaves cash in on savings

Shore Capital analyst Paul McGinnis is among those who have tested Hargreaves Lansdown's cash savings service and he sees 'huge potential'.

Rate rises will help Hargreaves cash in on savings

The launch of Hargreaves Lansdown’s (HRGV) new cash savings platform will offer ‘huge potential upside’ as the investment giant taps into a £40 billion pool of client money.

Shore Capital analyst Paul McGinnis downgraded his recommendation on the stock from ‘buy’ to ‘hold’, with the shares having reached his £16.75 'fair value' despite the sell-off in equity markets having 'theoretically' wiped out Hargreaves' £3.6 billion rise in assets in the first half of its financial year.

But he is enthusiastic about prospects for the online stockbroker's cash savings service, which he has trialled alongside selected Hargreaves Lansdown clients.

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

Each of the banks is offering accounts with terms between six months and five years, with rates of between 0.8% and 1.95%.

While the rates may not look too impressive, the launch of the platform – which was delayed by a year – will allow Hargreaves Lansdown to try and take a share of the £1.4 trillion UK cash savings market. Among its existing clients, Hargreaves has a pool of over £40 billion of cash savings to target, McGinnmis said.

Hargreaves receives its fee directly from the partner banks, meaning clients do not pay an explicit platform fee.

While McGinnis said there will be no benefit to profit and loss this year, ‘the prize is large’ and attracting just £5 billion of cash balances would boost profit before tax by 2%.

‘Suffice to say, we see huge potential upside for Active Savings,’ he added.

McGinnis said he was impressed by the service's ‘slick user interface and simplicity’.

He said the lack of form filling passed ‘the convenience test’ which is ‘something we think can be underestimated by investors’.

Future interest rate rises will see Active Savings ‘really come into its own’, predicted McGinnis.

‘Banks may then need to compete more aggressively to attract deposits and may be more prepared to offer "sweetheart" deals to a distributor like Hargreaves which has one million clients able to potentially raise this money very quickly and cheaply,’ he said.

‘We see parallels with how Hargreaves’ position developed in the fund management industry.’

9 comments so far. Why not have your say?

William Phillips

Feb 19, 2018 at 10:26

"Hargreaves receives its fee directly from the partner banks, meaning clients do not pay an explicit platform fee."

I thought official policy was to unbundle and disclose such sub rosa arrangements, so consumers could compare them for value for money. Why should cash be different from funds' costs?

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Daniel Godfrey

Feb 19, 2018 at 14:13

William, Maybe because you can see what you are getting back on the tin and future performance is not uncertain? (apart from credit risk, which is inoculated below the FSCS maximum). Not disagreeing with you, but there are differences.

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The Pensioner

Feb 19, 2018 at 14:44

If, after comparing it to the rest of the market, you are happy with the return HL are offering what difference does it make what they get out of the deal?. They are not a 'not-for-profit' organisation after all and if the deal they are offering is not competitive .. go somewhere else.

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richard tomkin

Feb 19, 2018 at 17:38

I use Alliance Trust Savings.At least they are honest and say the rate on uninvested cash is zero ( to the client,that is ! ) They are signally adept at rebuffing enquiries as to how much they themselves make on clients' money.

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Feb 19, 2018 at 20:11

A flexible ISA solves all the issues with investment cash balances.

Isn't the HL ISA flexible?

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The Pensioner

Feb 19, 2018 at 20:59

Don't understand this one! When I buy something from John Lewis or Tesco or whoever, they don't tell me what they are making on the deal, what they are buying the commodity for .. it's none of my business. As long as I'm happy with the product and the price I'm paying (there are other shops I can go to if I'm not happy with their price) then it's none of my business what they make.

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Tim Blaxter

Feb 20, 2018 at 09:03

The rates are poorer than if you go to the provider direct. Also, HL told me that they do not allow you to use money in a SIPP or ISA without it coming out of the wrapper, so it's no use as a SIPP deposit account. HL do not have a way of getting interest on SIPP or ISA deposits - a weakness in their offer.

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Bryan Cheetham

Feb 24, 2018 at 09:47

Would these savings be covered by the goverment guarantee?

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Feb 24, 2018 at 10:48

There is no government guarantee, the FSCS was set up by the government but it is an independent entity, funded by it's financial services members.

That begs the obvious question, what if it's members can't pay up the required amount. Too big to fail...

It's more of a confidence trick than a guarantee.

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