Trading 212’s interest on savings: what’s the catch?

The investment platform works differently to normal savings accounts.

You can now earn a decent rate of interest (5.2%) on cash held in the investment app Trading 212. That’s tempting for those after the highest returns on their cash – but it’s not the same as leaving your money in a standard savings account. Here’s what you need to know.

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What is Trading 212?

Trading 212 (T212) is one of the most popular UK investing apps – but we’re not focusing on that here. Instead we’re looking at a new feature paying interest on savings.

How to earn interest with Trading 212

When you add money to Trading 212, you’ll usually be using it to invest in shares or funds. . Until you buy these, the money sits in your General Investment Account or ISA “uninvested”.

However, this uninvested cash won’t automatically earn interest. If you want to get this you’ll need to opt in. To do this, hit the “hamburger” menu icon at the bottom right of the screen, and then choose “Earn interest on cash”. You’ll then need to select “Enable”, and agree to having your money added to Qualifying Money Market Funds (QMMFs) — more on these later.

How much can you earn with Trading 212?

The recent increase from T212 has brought the interest rate to 5.2%. This is a variable rate so it could change. In fact, it’s closely linked to (though not tracking) the base rate as set by the Bank of England. If we see cuts to this, as expected in 2024, then this will likely drop – though the same can be said for any easy access account.

There’s no minimum or maximum deposit to earn interest. Your savings are also fully easy-access, so you can withdraw money whenever you want. Interest is paid daily.

How does interest work on Trading 212?

It’s labelled as APY (Annual Percentage Yield) rather than APR (Annual Percentage Rate) as it works differently to normal interest.

Unlike savings accounts held with banks, your uninvested money isn’t necessarily held as cash with T212. Instead it could also be invested in things like Qualifying Money Market Funds. These tend to more or less follow the Bank of England base rate.

Trading 212 used this mix of different holdings to make the money to pay your interest, though I expect there’s also some marketing money in there in order to offer customers this high rate (it’s a good customer acquisition ploy).

Are savings safe in Trading 212?

QMMFs are seen as very low risk investments, but that doesn’t mean they are risk free. In the 2008 crash and 2020 pandemic, there were pressures on MMFs that saw some lose money held in them. This in-depth article from Monevator takes you through how they work in more detail.

There’s also no protection if Trading 212 was to go bust. If you don’t opt to get the interest, then  uninvested money is held in a bank, so it’s protected up to the FSCS level of £85,000. However, if it’s invested in the QMMF, you lose that protection — it’s worth noting that it won’t necessarily be put in a QMMF, but you’ll be asked to give permission nonetheless.

So there’s a small chance that you’ll lose some of your cash if you choose to use Trading 212 to earn interest, and there’s a danger that you’ll lose it all if T212 goes under.

Is interest earned taxable?

Money held in an QMMF might be invested, but the interest is still considered to be interest -as opposed to capital gains or dividends.

Whether you’ll need to pay tax on the interest earns depends on whether it’s held in your GIA or ISA. If it’s the latter then it’s all tax free. But anything you earn from T212 as interest outside of an ISA will count towards your Personal Savings Allowance. More on how the PSA works here.

Trading 212 vs other savings accounts

Until recently the interest rate from T212 has been below what you could get elsewhere. So there’s been very little point going for it over other options, though it was a good boost for those investing with the app that had money set aside for investing.

With the latest increase to 5.2%, it puts Trading 212 right at the top when it comes to easy access and cash ISAs. However, the difference is quite minimal.

When it comes to easy access, you can beat or match it – but only only limited balances. Santander’s Edge Saver pays 7% on up to £4,000 (though there’s a monthly fee which could reduce your return). You can also get 5.2% from Cahoot, but only on balances of up to £3,000. These should be fine for more people.

If you want to save more money, the best rate falls. 5.12% is available from Beehive, which accounts for 80p difference for every £1,00 saved. A better 5.17% is on offer from My Community Bank, though you need £20,000 to get this rate.

The best easy access Cash ISA right now is 5.1% from Chip. If you add the annual allowance of £20,000, that 0.1% difference adds up to £20 less over a year.

So despite the slightly better rate from Trading 212, I’d still stick with other savings options on easy access cash to ensure the return is guaranteed.

Indeed, if you are saving new money on a monthly basis then a regular saver will be an even better option. The top paying ones offer 7%, though both First Direct and Co-opertative Bank require you to have a current account with them.

Trading 212 ISA allowance hack

Where this could be useful is when you’re moving money into investment accounts but haven’t decided how or when to actually invest the cash. 

Though the adage goes “it’s time in the market rather than timing the market”, you might want to put money into your Stocks and Shares ISA to beat the April 5 deadline, but not actually invest all or part of the money straight away. While you’re waiting to do that, you can at least earn a decent rate of interest on that cash.

Similarly, if you’ve sold some investments or earned dividends and want to reinvest that cash, you could activate the interest to earn extra until that happens.