Where were you on 9/11? Do you remember when you first heard that Princess Diana had died?

What about when you truly realised what compound interest could do for you?

I know that I was in a Waterstones in Bayswater in London, browsing a book by – I think – Jim Slater.

I almost dropped it in shock when I saw the future.

Admittedly this ultra-niche appeal anecdote would be punchier if I could be certain which book of Slater’s I was reading– or even be sure that he was the author.

The truth is I’m not even confident what year it was.

Mid-to-late 1990s – and perhaps more ‘late’ than I’d like to concede. Me still in my 20s, just, thinking I knew it all but regularly getting my ideas turned upside down.

All that I remember very well.

Double Maths at A-Level, but it took a graph in a book and a few small numbers in an equation to show me a way that I hadn’t come up with myself.

Golden retrievers

Given that on every second date I go on the term FIRE comes up these days, I expect it will be hard for younger readers to believe there was a time when you had to ferret out this information for yourself.

No blogs, no YouTube, no financial Twitter or TikTok. No ‘finfluencers’. Nobody in your extended family who didn’t work until they were done unless they had kids, sold a business, got sick, or died.

No real-life role models for financial independence – let alone retiring early.

But that was how life was back then. You became interested in a subject and you followed a breadcrumb trail – through libraries, bookshops, the nascent Internet, and word of mouth. At the end might be a musical subculture, an Eastern philosophy, a passion for early Porsches, or maybe some sexual fetish you never imagined existed.

It all took a lot of time but the journey was half the reward.

Today though, it takes about as long as it took me to type “today though” for you to have answers to everything at your fingertips.

Of course you still need to digest the material. And you must be more alert than ever to bogus nonsense. That’s the downside of getting rid of the gatekeepers of yesteryear.

You also need to know the right question to ask – trickier than it sounds when you might not yet have a clue about the answer.

In any event, today’s shortcuts are more like warp zones in Mario than incremental power-ups.

There’s no excuse not to know how to do anything.

House-trained mutts

I suspect this abundant information is one of the frustrations that older people have with the young nowadays.

We – as I suppose I might as well get used to writing – might bemoan that the younger generation’s financial woes are due to avocado on toast or YOLO-ing away a potential house deposit.

But we also think there’s no excuse for them not to know better.

Because everyone can know all this stuff if they want to.

Never mind that ‘we’ have mostly been bailed out by rising house prices, decently well-paid jobs, and for 15 years by the near-absence of meaningful interest rates.

Nor that despite these tailwinds a large cohort of even professional people in their 40s and 50s remain slaves to their credit card debt – or are decades behind on saving for a pension.

And I’m only talking about the sort of people who might eventually cross the path of Monevator, you understand. Not the one in five who have no pension savings at all nor the many millions who would struggle to get their hands on just a few thousand pounds without taking out a loan.

Maybe knowledge isn’t everything, after all?

The dogged pursuit of financial freedom

I was thinking about all this after talking to the very bright son of a friend of mine who I’m convinced is on the brink of making a big mistake.

He’s in his mid-20s and he’s frustrated with “having no money”. So he’s about to chuck in a good thing – in my opinion – and make some massive compromises in the pursuit of more cash today.

I advised him to be patient and to look to the big picture.

As we talked, the memory of my compound interest revelation in the bookstore bubbled up:

“I worked out when I got back home that if I could just save £500 a month for the next 25 years then I’d become a millionaire,” I explained.1

Unusually for a stealth wealther like me, I delivered what I thought was the mic drop:

“So I started saving £500 a month – and I achieved that goal.”

My young disciple wasn’t even fazed though. And I don’t think just because a million pounds isn’t what it used to be.

Turned out he’d heard of Mr Money Mustache. Spent a few hours going down the YouTube rabbit hole. He’d discovered these ideas several years younger than me, as it happened.

“FIRE, sure, yeah. Well you have to have £500 a month to do what you did,” he said glumly, before listing his monthly post-tax income (after, as best I could tell, a mandatory pension contribution), the rent for a room in a shared flat in a grimy bit of South East London, how much he spent in Morrisons on a single visit last week, and what it costs to fill his car.

No, I don’t think he should be driving in London either. But it was hard to argue that he was living it up.

He told me he was thinking of moving back in with his parents.

Barking up the wrong tree

Yes I am the guy who said young people are already rich on account of their long time horizons.

But if they can’t begin to take advantage of that potential, then isn’t their youth a stranded, wasting, and illiquid asset?

I won’t go through the laundry list of ways in which the older generations have arguably been over-enriched and the young given short thrift during the past 20 years.

House prices and insufficient new home building, the cost of higher education, and politicians favouring pensioners covers most of it – with the witless Brexit the icing on the cake.

Have a Google for hundreds of articles on the theme. There are even books on the generational divide.

But I will admit that this conversation gave me pause.

I think I know about all this stuff – yet my instinct had been to lecture this young man about compound interest rather than to truly hear him out.

In the way of a groovy geography teacher I had wanted to sound less like ‘we’ as the older generation when I was talking to him, and more like ‘us’.

But in reality there I was at the front of the class, and he was shaking his head at me not getting it.

In the dog house

What’s the killer takeaway? That I should talk less and listen more? That Britain needs to change its focus to the struggles of young people – especially those without rich parents? That I’m older than I think I am?

All true and maybe there isn’t a big revelation.

I’m pretty confident I could still reach financial independence if I started today. I see abundant opportunities that didn’t exist when I was my young friend’s age. He’s overly pessimistic.

Also, I did enough stupid things on my journey to believe there was a margin of safety. (For instance I never benefited from the long property boom, and I could have made more of my career.)

But honestly? I do suspect it would be harder now. Even if I still think he’s making a mistake.

Plus ça change, plus c’est la même chose and all that.2

This lad has run into the same concept that totally changed my life – and it has bounced right off him.

For all the guidance from blogs, YouTube videos, and social media influencers, every generation’s young people will do what they want and have to, and take their own missteps.

Those of us who went before are going to shake our heads.

And they’ll shake their heads right back at us.

Are you a younger person who thinks financial independence is harder to reach these days, despite all the information charting the path out there? Are you an older person with another perspective? Let’s have a productive discussion between the generations in the comments below!

1. Yes I used an aggressive rate of return back in those days. Somewhere between 12-15% from memory. Which turned out not to be too optimistic for me but maybe that was lucky. It is also not really the point. [↩]
2. The more things change the more they stay the same. [↩]

What caught my eye this week.

Technology marches on. I almost got knocked over by a stealthy Tesla this morning. The electric vehicles proliferate along my street like units spawning in a real-time strategy game.

Meanwhile, Apple is readying its Vision Pro headset to immerse us in new realities – or at least its App store – while chatbot AIs conspire in the wings. India just launched a mission to the other side of the moon.

Monevator is not being left behind in this tumult. That’s right! Thanks to your support and the efforts of our hard-working engineer(s), we’ve finally enabled reader edits in our comment section.

That’s right, no need to regret one ‘s’ too many in the word ‘recession’ anymore. When you post a comment, you will have five minutes to give it a read through and tweak. You can also delete your comment entirely if you have second thoughts.

For Monevator members, there’s no time limit. Your comments will always be editable and can be deleted, provided you’re logged-in and posting under your registered email address.

Update 18/7/2023: Following reader feedback and further thought, we’ve decided allowing comments to remain open forever could have more downside than upside. However I’m also increasing the time limit for editing to 10 minutes, which I hope should cover most scenarios!

Say what?

Our comments are home to excellent discussions, and I’ve long resisted tampering with a winning formula. But editing has been requested many times. Hopefully this strikes the right balance.

One worry I’ve had is a rare malicious poster manipulating their comments for nefarious reasons. The timer should restrict the scope for that. We’re implicitly trusting members to be good actors by removing the time limit for them.

But just to be safe, all edits are tracked and stored. If someone does say something just to start a row and then sneakily goes back and changes what they wrote – a big reason I’ve avoided allowing edits for so long – then we’ll know.

For 99.9% of you this is irrelevant. But trolls beware!

Otherwise bumper links this week, with lots to be discussed. How crazy is that graph of parental help for house deposits? Then there’s the pension shake-up shenanigans…

Enjoy the reading – and maybe the writing and – have a great weekend.

From Monevator

How well do commodities protect against UK inflation? [Members] – Monevator

Interest rates on cash at investment platforms – Monevator

From the archive-ator: Summertime [2020] and the living is queasy – Monevator

News

Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

Mortgage rates hit a 15-year high in Britain – Which

Renting a room tops £700 a month; £971 in London – Guardian

GDP fell 0.1% in May – Guardian

Bank of England: mortgage defaults rise 30% in three months – This Is Money

National debt could reach 300% of GDP by 2070s, says ONS – Sky News

Ripple notches landmark win with SEC over cryptocurrency – Reuters

Home ownership in Britain has become a hereditary privilege [Search result] – FT

Pension raid to boost blighted Brexit Britain* news mini-special

‘Mansion House reforms’ seek to channel pension savings into unlisted firms [Search result] – FT

All the official pointers and documents regarding Jeremy Hunts proposals – GOV.UK

Rolling the dice on British pensions [Podcast, excellent overview but the call for local authority apparatchiks to make sub-scale investments in unlisted local projects using other people’s life savings is bonkers IMHO] – A Long Time In Finance

How to opt out of Hunt’s risky plans for your pension [Search result] – FT

Pensions industry tries to get to grips with ‘avalanche’ of developments – Pensions Age

I told you so – Monevator

*I may be editorializing a tad.

Products and services

Coventry’s new easy access account pays 4.5%; four withdrawals a year – This Is Money

TSB launches £200 bank-switching offer – Which

Transfer your SIPP to Interactive Investor in July and get from £100 to £3,000 in cashback, plus pay no SIPP fee for six months. Terms apply – Interactive Investor

NS&I boosts rate on one-year bond to 5% – NS&I

UK banks improve rates for savers after FCA meeting [Search result] – FT

Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine

What to do if your phone gets stolen – Which

MMM reviews his Tesla Model Y – Mr Money Mustache

Amazing UK homes to rent, in pictures – Guardian

Comment and opinion

Passive investors: enough with the puritanism – Humble Dollar

Labour’s plan will not transform UK’s poor economic prospects [Search result] – FT

Gen Z want to work ‘lazy girl jobs’. Who could blame them? – Guardian

Bill Bernstein revisits The Four Pillars of Investing – Morningstar

Wealthy UK borrowers face interest-only mortgage shock [Search result; yep] – FT

Should emerging markets play a role in your portfolio? – Morningstar

Why 1966 was the worst year to retire – Think Advisor

Understanding Fat FIRE: an in-depth guide – Of Dollars and Data

UK consumers splashed the cash, and helped push prices up – David Smith

Have older investors become too aggressive? – Morningstar

Career – Indeedably

What exactly is your problem with stock index concentration? [Search result] – FT

A blueprint for peak retirement – A Teachable Moment

Naughty corner: Active antics

UK PLC going cheap. [I wonder what happened in 2016…?] – Merryn via Twitter

Private equity firms add debt. That’s just about it – Verdad

The UK market boasts an abundance of high-yield stocks – UK Dividend Investor

A first-half investment trust portfolio review – IT Investor

Are you a good investor? – Maynard Paton

This US small cap has paid an unbroken dividend for 205 years – Motley Fool

Ten graphs that show how the year has been full of surprises (as usual) – Bilello

Signs of hope for late-stage private market valuations – Axios

Kindle book bargains

Money Men by Dan McCrum [On the Wirecard fraud] – £2.99 on Kindle

The Ride of a Lifetime by Bob Iger – £0.99 on Kindle

How to Own the World by Andrew Craig – £0.99 on Kindle

Environmental factors

How alt fund managers became green energy leaders – Institutional Investor

Orca whales are ramming boats. Why? – Guardian

How ancient ‘skywells’ keep old Chinese homes cool – BBC

Scientists are ready to formally declare the Anthropocene era – Sky News

Will you catch dengue fever in Europe this summer? – Which

Researchers find 176 bird species using man-made materials in nests – The Conversation

Scientist says we’re in “uncharted territory” after world’s hottest week on record – Lad Bible

Turning humid air into renewable power – Guardian

Robot overlord roundup

How AI chatbots can help you understand – Humble Dollar

Off our beat

What did people do before smartphones? – The Atlantic via MSN

Do hard things if you want an easy life – Darius Foroux

What to make of physicist’s claim to alien discovery? – The Conversation via Yahoo

The 2023 Comedy Pet Photography Awards, in pictures – Guardian

The story behind the Mission Impossible theme tune – The Honest Broker

Peak China and the coming of ‘Altasia’ – Noahpinion

And finally…

“Reps, reps, reps.”
– Arnold Schwarzenegger, Total Recall

Like these links? Subscribe to get them every Friday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.

For a long time we couldn’t compare the rates of interest on cash in investment accounts for one simple reason.

Brokers weren’t paying any interest on cash!

Rising rates have so dominated the news for the past 18 months that it’s easy to forget that interest rates were near-zero for more than a decade.

Even savings accounts at your bank paid no interest. So your online broker1 was more likely to send you a Christmas hamper from Fortnum and Mason than to cough up interest.

But now the Bank of England’s rate is 5% and everyone is giddy about cash again. (Let’s leave aside the fact that inflation in the UK is still nearly 9%…)

As a consequence, many investment accounts do now pay some interest.

Not all of them, not always very much, and it’s often difficult to find out exactly what interest rate they are paying – but it’s better than nothing.

You still won’t find these interest rates featured in our broker comparison table though.

You can blame the platforms for that.

(Don’t) show me the money

It’s easy to point the finger at faceless corporations for making life hard for the little guy.

And believe me, I have been blaming not them but my co-blogger The Accumulator for the past few months for the lack of an interest rate column in our table.

“Let’s include interest on cash in investment accounts in our broker table,” I intoned from my lofty throne, like Zeus commanding the lesser gods to do his bidding.

The Accumulator looked up.

“Um, that’s an interesting idea *cough* something *cough*,” he said, before going back to doing whatever he wanted to do as usual.

This time The Accumulator was engrossed in a couple of months of deep-diving into commodity correlations.

What a thrill-seeking hedonist, I snorted. Why can’t he simply collate the interest paid on cash in investment accounts with the rest of the data he trawls to keep our table updated?

“Fine! I’ll do it myself!” I harrumphed.

Yeah that was a stupid idea.

The Accumulator is a platform maven. My co-blogger navigates the Byzantine information silos that pass for a broker’s help pages like a spaniel sniffing for truffles.

So at the least he would have confirmed the woeful job some platforms do of highlighting their rates of interest on investment accounts much quicker than I did.

But I don’t think he would have found all the data. In fact I suspect he knew this was a Sisyphean nightmare – hence his evasive action.

And so even as Monevator readers too called for rate data to be included in our modestly famous comparison guide, The Accumulator bumped around in his fat-suit, plotting lean hog futures against corporate bonds and keeping his head down.

Interest on cash in investment accounts at a few platforms

Maybe you’re thinking that this is where I’ll reveal that – after a week spent combing the platforms, calling their service desks, and meeting their hired representatives in the shadows of Canary Wharf – I’ll now unveil a comprehensive guide to interest rates at every broker out there?

Reader, your faith is touching.

But unfortunately I ran out of puff.

For example I spent half an hour digging around Lloyds Banking Group’s website to no avail. Both when navigating its own menus and when swooping in over the walls with a targeted Google raid.

At the time of writing I still don’t know if Lloyds pays interest on investor cash! Perhaps I’m missing something obvious but the information has eluded me.

At least its High Street rival Barclays clearly states it pays no interest on cash in investment accounts. And it only took me a couple of minutes to find that out.

It was similarly hit and miss with the other platforms.

Maybe this isn’t entirely nefarious obfuscation on certain platforms’ part. I get the impression today’s much higher interest rates have caught some platforms on the hop, like they have the rest of us.

Remember how Vanguard seemed to almost accidentally be paying a high interest rate earlier this year? And then how it at least appeared to revise the rate down when we noticed?

It could be a factor, but remember that uninvested cash left lying around in customers’ accounts is a profit center for most financial services companies. Pooled together, it can earn a decent chunk of interest that boosts their bottom line – at the expense of our own.

So they do have business reasons not to want their customers thinking too hard about interest.

Okay, now show us the money

Just to complicate matters, most of the platforms that do pay interest will give you a different rate depending on how much cash you have on their platform.

Which clearly makes doing any side-by-side comparison even trickier.

So for now I’ll just post a taster comparison. Focusing shamelessly on those platforms who offer us an affiliate fee should anyone sign-up, as compensation for my suffering.

But we will revisit and expand this table in a few months when – like a mother who gets broody again after she’s forgotten the experience of child birth – I have forgotten the pain.

Note: Rates are changing frequently. These are the latest as I write.

Examples of rates of cash on investment accounts: ISAs

As I discuss below, big gobs of cash should really be held in a cash ISA. But here’s what you’ll get with a few different investing platforms with a share ISA.

Platform	Interest rates (range)	Notes
AJ Bell	1.7% to 2.2%	Better rate is above £10,000
Bestinvest	4.1%	High rate on all accounts
Dodl by AJ Bell	0%	Free dealing quid pro quo?
Hargreaves Lansdown	2.5% to 3.5%	Four tiers up to £100,000+
Interactive Investor	1.5% to 3.5%	Three tiers up to £100,000+
InvestEngine	0%	Free dealing quid pro quo?
Plum	2.99% to 3.82%	Higher with premium plans, cash must be moved into ‘pocket’

Examples of rates of cash on investment accounts: SIPPs

Rates of interest on cash held in pensions are generally a little higher. That’s good, given the difficulty of accessing or moving money held in a SIPP.

Platform	Interest rates (range)	Notes
AJ Bell	2.95% to 3.45%	Better rate is above £10,000
Bestinvest	4.1%	High rate on all accounts
Dodl by AJ Bell	0%	Free dealing quid pro quo?
Hargreaves Lansdown	3.2% to 4%	Tiered, higher in drawdown
Interactive Investor	2.25% to 3.5%	Three tiers up to £100,000+
InvestEngine	n/a	Doesn’t offer SIPPs yet
Plum	2.99% to 3.82%	Higher with premium plans, cash must be moved into ‘pocket’

Where else to stash your cash

Excuse me for stating the obvious, but you don’t need to have your portfolio’s cash allocation kept in an investment account with your broker.

You’ll generally earn better interest elsewhere.

Cash can just accidentally accumulate with your broker, of course. Especially if you’re an active investor or you own a lot of income funds without dividend reinvestment switched-on.

But I also see people holding cash with their brokers as a result of mental accounting.

They think “I have £200,000 in my stocks and shares ISAs and I want some of that in cash as a safety cushion”.

Really they’d be better off holding that cash elsewhere and thinking of their assets holistically.

Sometimes you may have a good reason to hold cash in an investment account.

Perhaps you’re building up dividends for a particular purchase, or maybe you’re a naughty active investor indulging in a bit of (ill-advised) market timing. Or you’ll hold cash in your pension because you reason that adding to that bucket has special constraints – yet you want to really dial down the risk.

Still, the rate of interest on cash in investment accounts is so low that it is unlikely to be your best choice on even a short-term time horizon.

On a longer timescale it will cost you for sure.

So where should you be parking your cash for the longer-term?

Cash ISAs and savings accounts

You can get a much higher rate of interest with cash ISAs and standard savings than at your broker.

In an ideal world any strategic cash allocation – held say as part of a Permanent Portfolio-style plan – would be nestled inside a cash ISA, where it can grow unmolested by HMRC.

With interest rates now half-decent, beware that you won’t need a vast balance in a non-tax-sheltered saving account before you’ll be paying tax on interest.

Anyway, just don’t make the mistake of thinking you need cash in the same account as your shares or similar. Think holistically about your investing (and your net worth for that matter).

I do this via a master spreadsheet. It pulls together all my ‘pots’ and other assets – including my own home – via a bunch of dedicated sub-sheets.

Money market funds

If for some reason you don’t want to (or can’t) keep your portfolio’s long-term allocation to cash in a proper cash ISA, then money market funds may pay you a higher rate than your platform.

My co-blogger’s view is the teeny-tiny risk that comes with even the best of these funds – because they are funds, not cash – is not worth a slightly higher interest rate.

Read his comprehensive piece on money market funds to find out why.

I’m a little more sanguine. I wouldn’t keep all my cash in a money market fund (and my cash would only usually be a relatively small part of my portfolio, anyway) but I don’t think a toe in this pond will hurt in 99.99% of alternative histories. Legitimate money market funds almost never fail.

And even if something should go wrong, it’ll probably only cost you a delay in access or – worst case – a couple of percent in a very dire scenario. (I don’t think anything as bad as the latter has ever happened with a mainstream UK/US money market fund, for context.)

Still, there are risks. From market turbulence to incompetence to fraud and more.

Cash is cash and nothing else is cash.

Index-linked and conventional gilts

As I write you can earn more than 5% on a one-year gilt held to maturity.

That’s very hard to beat. There are tax advantages too if your cash is outside of a shelter.

Index-linked gilts pay a much higher real yield (because your 5% nominal on a vanilla gilt or cash in the bank is -4% in real terms with inflation at 9%). But they come with other complications.

Bonds have been terrible assets to own for the past couple of years. But over the long-term they’ve beaten cash on an annualized basis, and you’d expect them to do so in the future.

However even short-term conventional gilts are relatively volatile compared to cash.

Everything is volatile compared to cash!

So if you want your cash-like allocation to be unchanged day-to-day, then it has to be cash.

Other kinds of bond funds, and alternatives

Corporate bonds, high-yield bonds, REITs, absolute return hedge funds, infrastructure trusts…

…whatever bracket you want to include these in, they are not even close to cash.

Generally you should think of them as part of your equity allocation – not fixed income – when you think about your portfolio’s risk profile.

I won’t write more here because – yes – only cash is cash. These ‘cash proxies’ certainly aren’t.

How much interest on cash does your favourite broker pay?

To wrap up, you may have noticed that I have used the phrase ‘interest on cash in investment accounts’ several times in this article.

That’s because as mentioned we will eventually collate and update a table of rates for all the major brokers. And my SEO minions (um, that’s me and TA, armed with Google) have told us to put down a marker in advance, which we will revisit when we have all the data.

(This, incidentally, is also why you might feel like you’ve read the same story about your favourite 1990’s film star’s new spouse a dozen times. It’s a sorry side-effect of the modern Internet.)

Anyway, how about we crowdsource a few more brokers’ interest rates payable?

If you – whether as a user or an employee disguised as a user – can point me in the comments below to a URL that clearly lays out the interest on cash in investment accounts at a particular broker, then I will gratefully include it when we revise this post.

(Bonus marks if you can embarrass me by pointing to the rates at Lloyds…)

In the first instance we’ll add to the tables here. Later we can embed them on the broker comparison page.

Unfortunately the multitude of different tiers the brokers use mean it’ll probably be too much to ever expect a clear column making it easy to compare the different platforms’ rates.

Which, cynically, I expect is by design not accident.

Do you know the secret spot where your coy broker reveals what it pays in interest on cash in investment accounts? Let us know in the comments below.

1. Also known as platform. They’re synonymous. [↩]