Trading 212’s Cash ISA: What’s The Catch?

Trading 212, primarily known as an investment platform, has entered the UK savings market with a new cash ISA.

This cash ISA has been generating significant attention due to market-leading interest rates and flexible features — giving you the option to withdraw or move money around without affecting your annual ISA limits.

New customers can also claim a free share worth up to £100, making this seem like an even more enticing option.

But what’s the catch here? How could a relatively small player in the financial industry — and not even a bank — offer the best cash ISA on the market?

Let’s take a detailed, balanced look at what the Trading 212 Cash ISA offers, and consider its potential drawbacks.

All figures were correct at the time of publishing. Not financial advice. We’ve linked to all mentioned ISAs so you can check how current rates compare.

Interest rates

At the time of writing, Trading 212 offers a 5.2% interest rate on its cash ISA, paid daily.

This rate is undeniably attractive, especially when compared to the dour rates offered by established high street banks:

• Barclays: 1.66% on instant access, 4.55% on a one-year fixed rate
• NatWest: 1.75% on instant access, 4.5% on a one-year fixed rate
• HSBC: 2.5% on instant access, 4.45% on a one-year fixed rate

But there are other fintech companies that offer competitive rates:

• Trading 212: 5.2% interest
• Plum: 4.92% interest (first 12 months only, 4.04% thereafter)
• Chip: 4.84% interest

While Trading 212’s rate is market-leading at the time of writing, it’s important to note that interest rates are always subject to change. Rates have changed multiple times as this article progressed from ‘first draft’ to ‘published’.

This high rate could be a promotional offer to attract new customers, and savers should be prepared for possible adjustments in the future — especially when rates are higher than the UK’s base rate.*

Trading 212’s 5.2% interest rate was set when the official Bank Rate was at 5.25%, but has stayed at 5.2% despite the Bank Rate being reduced to 5%.

Flexibility

One of the most appealing features of Trading 212’s cash ISA is its flexibility.

Unlike many fixed-term ISAs where you have to lock in your money for a set period — usually a year or longer — this account allows withdrawals at any time without penalties.

It’s also a flexible ISA, meaning you can withdraw and replace funds within the same tax year without affecting your annual ISA allowance.

For example, if you’ve deposited £20,000 and then withdraw £5,000, you can later replace that £5,000 without it counting twice towards your annual limit. This level of flexibility is uncommon, especially when paired with a high interest rate and fast access.

However, access to your money — should you want it — isn’t instant. Trading 212 say to allow up to three working days to receive your money after requesting a withdrawal.

In our test, we received the money after one working day.

FSCS protection

Trading 212’s cash ISA is covered by the Financial Services Compensation Scheme (FSCS) up to £85,000, providing a potential safety net for savers in case the company ever goes bankrupt.

This is a significant improvement over the interest offered within their investment accounts, where some uninvested cash was previously held in money market funds without FSCS protection.

While this protection is reassuring, it’s standard for UK savings accounts and shouldn’t be seen as a unique selling point.

It does, however, address previous concerns about the safety of funds generating interest with Trading 212.

Additional features

We already touched on the flexible ISA functionality, but the ability to move money between the cash ISA and stocks and shares ISA within Trading 212 could be beneficial for some savers.

This takes advantage of the UK government’s allowance to deposit into multiple ISAs per year, as long as the total doesn’t exceed the annual limit.

In theory, this means that an investor could use the Cash ISA to store their emergency fund — separate from their investments. This helps investors make greater use of their annual allowance — once a year passes by, you can never get that allowance back.

In addition, the account has no sign-up fees, no ongoing account fees, and a low minimum deposit of £1, which makes it accessible to a wide range of savers. This is particularly appealing for those just starting to save or who want to test the waters before committing larger sums.

The fact that interest is paid daily is quite unique, too. Many competitors pay out monthly and some even pay out once per year.

They offer free transfers in or out, meaning you can transfer your ISA to Trading 212 — or away from Trading 212 — at no charge.

Potential concerns

Despite looking very promising, there are some drawbacks that might be worth considering.

While Trading 212 has managed investments for a long time — they were founded in 2004 — they’re new to the savings account market.

This lack of track record in managing savings products could be a concern for some. Established banks, while offering lower rates, have a longer history of managing savings accounts.

They’re also an online-only service. This might not suit savers who prefer face-to-face banking or those less comfortable with digital platforms. There’s no option for branch visits or telephone banking, which some customers may miss.

We’ve already touched on the fact that their current interest rates likely aren’t sustainable.

That said, it’s still possible that the company tries to maintain a market-leading rate — even if that rate isn’t 5.2%.

One Financial Interest subscriber struggled to transfer to Trading 212 because their existing bank demanded a sort code and account number to transfer to. As Trading 212 is not a bank, this is not something they provide. This is really an issue on the banks’ side and does not affect you if you want to transfer away from Trading 212.

Finally, there’s the potential of cross-selling investment products.

Given Trading 212’s primary focus on investments, this could lead to pressure on savers who don’t want to be tempted by options with higher risk.

However, all leading banks also offer investment products — arguably with greater risk due to typically being more expensive.

Opening an account

The process of opening a cash ISA is straightforward, with differing options depending on whether you’re a new or existing Trading 212 customer.

New customers

1. Sign up via Trading 212’s website
2. Open a ‘Cash ISA’ account
3. Make an initial deposit (minimum £1)

Existing customers

Existing Trading 212 customers can open a cash ISA directly from their account dashboard.

Simply click your balance in the top left of the app, or their website, to switch between different account types.

Free share

If you’re new to Trading 212 and haven’t claimed your free share worth up to £100, hit ‘Use promo code’ in the menu, then add the code ‘FIN’.

However, this will only work if you’ve deposited into an investment account — not a cash ISA.

Fortunately, there’s a simple way to claim a free share with a Cash ISA:

1. Deposit into your Trading 212 Cash ISA.
2. Click the menu, then ‘Manage funds’.
3. Click ‘Move funds’.
4. Move at least £1 into your ‘Invest’ account.
5. Click the menu, then ‘Use promo code’.
6. Enter code: FIN.
7. Finally, move the £1 back into your cash ISA.

Conclusion

Trading 212’s Cash ISA offers an attractive package of high interest rates and flexibility.

For savers comfortable with online banking and looking for easy access to their funds, it could be a compelling option.

The high interest rate, combined with the flexibility to withdraw and replace funds without affecting annual ISA limits, sets it apart from many competitors.

However, the lack of a long track record in the savings market, the online-only nature of the service, and the potential for future rate changes are factors to consider carefully. Additionally, the easy access to investment products may not be suitable for all savers.

As with any financial product, it’s crucial to assess your personal financial situation and goals before committing.

While Trading 212’s offering is competitive, it’s always wise to shop around and consider multiple options before making a decision.

Consider factors such as your comfort with online banking, your need for flexibility, and your long-term savings goals when evaluating this and other savings options.

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