Cash savers exposed to risky investments by popular Isa providers
Have you or a loved one lost money trading CFDs or other complex financial products? Get in touch at money@telegraph.co.uk to share your stories.
Cash savers attracted by competitive interest rates are being exposed to high-risk investment products by popular Isa providers, experts have warned.
Two popular Isa providers, Trading 212 and IG Group, offer a product that results – according to their own research – in the majority of investors losing money.
Contract for differences, or CFDs, are complex and highly risky trading products that allow investors to speculate on the price movement of an underlying asset without actually owning it.
Traders can also use leverage to boost their potential winnings, but this in turn raises the chances they will lose money. According to trading platform Trading 212, 77pc of its retail customers lose money when trading spread bets with CFDs. IG pegs its own figure at 71pc.
Trading 212 is a popular savings and investment app, with its cash Isa and stocks and shares Isa promoted across personal finance websites including MoneySavingExpert and Which?.
The app pays 4.35pc interest annually on uninvested cash in its stocks and shares Isa. This figure was 4.6pc until recently, just shy of the top-paying cash Isa at 4.85pc. Trading 212's cash Isa, meanwhile, pays just 4.1pc, meaning its customers are better off keeping their money uninvested in its stocks and shares Isa.
Yet savers with a stocks and shares Isa who opt not to invest and solely earn interest on cash may be chided by the following notification: 'Keep your benefits active. We noticed you haven't traded for a while, yet you are still earning interest on your cash.
'We wanted to remind you that your Trading 212 account is primarily an investment account. It's designed for investing, rather than for holding cash as in a traditional savings account.'
IG – another trading platform that primarily offers high-risk products such as CFDs – offers a stocks and shares Isa that pays interest of 4.25pc on uninvested cash. Savers that signed up in May could earn a market-busting 8.5pc, but they are forced to trade to earn the cash interest rate.
Savers may also be unaware that interest paid on these savings is not necessarily earned in the traditional sense, and comes with fewer protections.
Those who opt into earning interest on uninvested cash see their money – at least in part – invested in qualifying money market funds. While these funds are low-risk, cash held within them is not covered by the Financial Services Compensation Scheme, unlike the interest offered for cash Isa savers.
Trading 212 customers with a cash or stocks and shares Isa will also frequently see the CFD section of the app when switching between their accounts, or accessing menu screens.
Darius McDermott, managing director of Chelsea Financial Services, said: 'Trading 212 has built much of its platform on its cash [Isa] product. You get into the market with one competitive product and then transfer your customers to other kinds of products.'
Since IG launched its stocks and shares Isa in 2014, it has seen a 175pc increase in active clients, according to analysis of its data by investment platform Lightyear.
Holly Mackay, founder of independent financial platform Boring Money, said: 'Trading 212 [has] had success in attracting and engaging new investors – whether through cash Isas or just better apps and user experience than traditional players.
'This better digital experience combined with very low costs – in some cases no costs at all – has seen [these platforms] add huge numbers of new customers.'
In line with Financial Conduct Authority (FCA) rules, if users opt to start trading CFDs in the Trading 212 app, they are warned that '77pc of retail investor accounts lose money when trading with this provider'.
Before they can start trading CFDs, users must also answer just five multiple choice questions about the investment product, and disclose whether they have any experience in the area. But these steps can be breezed through quickly, and the platform carries out no other checks to verify whether a customer is a professional with trading experience or not.
The FCA's Consumer Duty, which took effect in July 2023, states that firms should aim to continuously address issues that risk causing consumer harm, and must act to deliver good outcomes for retail customers.
McDermott said: 'I do not believe that CFDs should be readily available to the majority of retail investors – you should be a professional trader with a high net worth to use them. People who are saving for medium and long-term goals shouldn't be exposed to CFDs.'
Mackay added: 'I think we do need to reconsider the disclosures around CFDs and crypto, which are increasingly being offered up alongside much less spicy investment products, but have the potential to go very wrong, very fast.'
'CFDs have their roots in gambling'
In April, IG Group completed its acquisition of Freetrade, a popular stocks and shares Isa and investment app, gaining access to the platform's 720,000 customers. Freetrade, like Trading212, is known for its low fees, and is a popular option for retail investors.
Freetrade has not previously offered CFDs, and the platform has not hidden its disapproval of such high-risk products in the past.
One blog post on the Freetrade website from 2017 warned customers that 'CFDs are hazardous to your wealth'. Another, from 2024, read: 'CFDs have their roots in the UK gambling sector and they are designed for people to take short-term, high-risk bets on price movements in the financial markets.
'Freetrade does not offer CFD margin trading accounts as we believe they do not provide value to investors or encourage the sort of investing habits that usually provide positive financial outcomes over the long term.'
A spokesman for Trading 212 said: 'Each product that Trading 212 offers has its own specific target market, i.e. what type of customer we consider the product has been designed for, and how the product will deliver on the customer's expectations.
'In order to ensure those products reach the intended target market, we have created a clear separation between each product type via separate onboarding journeys and distinct accounts.
'Each onboarding journey incorporates specific hurdles, such as risk tolerance, investment objectives, experience, knowledge tests and vulnerability assessments to ensure the customer is aware of the product risks and sufficiently capable, both in knowledge and financial resilience, to accept those risks.
'If a prospective client does not meet the requisite thresholds, they will not be able to use the product. This is in line with the FCA's Consumer Duty.'
A spokesman for the FCA said: 'All financial promotions must be fair, clear and not misleading. Trading platforms must make sure that their customers can make well-informed investment decisions by providing appropriate risk warnings.'
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