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Moneybox offers top 5% cash ISA but beware protection conundrum if you bank elsewhere

Moneybox offers top 5% cash ISA but beware protection conundrum if you bank elsewhere
Emma Lunn
Written By:
Emma Lunn

The savings and investing app has increased the rate on its cash ISA from 4.75% to 5%, making it a best buy. But the way Moneybox is set up means you’ll need to do extra checks to ensure your money is protected.

It is the third time Moneybox has hiked the rate on its cash ISA in the past month, taking it from 4.65% when the product launched on 4 September, to 5% now. The rate includes a bonus for 12 months of 0.85%. This means the 5% rate will drop to 4.15% on the one-year anniversary of opening the account. It’s a good idea to diarise and compare rates then to make sure you’re getting the best deal.

You will need to deposit a minimum of £500 to open the account via Moneybox’s mobile app. The maximum you can pay in each tax year is £20,000, as per the ISA rules. Transfers are allowed in from ISAs held with other providers.

Further additions can also be made after an initial deposit, and you can access your cash. But there is a limit of three penalty-free withdrawals, which if breached, results in a drop in the interest rate to 0.75% AER.

Are your savings protected?

Moneybox is not a bank, although it is authorised by the Financial Conduct Authority (FCA) to hold client money. This set-up impacts the way your money is protected.

For all of its savings products, including the cash ISA, Moneybox deposits customers’ money with third party banks. These banks are covered by the Financial Services Compensation Scheme (FSCS) and, in the event one of them fails, you would be eligible to claim up to £85,000 per person per banking brand for any shortfall in money.

Moneybox would make the claim to the FSCS on your behalf in relation to savings products and the claim may take up to three months to settle.

The important thing to note is that the £85,000 limit applies in aggregate to the total amount of money held by you at any one bank, whether it is deposited by Moneybox, by other providers, or by you directly with the bank or banking brand (some banks and building societies share protection across different brands, where they operate under one banking licence).

At the moment Moneybox only uses two banks for its Cash ISA – Santander and HSBC – but it plans to add a third, currently unnamed bank, soon.

Moneybox said that the proportion of money held with each bank can vary over time. However, it will never hold more than 50% of the total funds with a single bank at any given moment.

This means the funds in the cash ISA will currently be held 50% in Santander and 50% in HSBC.

This set-up can cause a conundrum for savers with cash in other HSBC or Santander accounts. If you have more than £75,000 with Santander or HSBC and invest your full £20,000 ISA allowance with Moneybox (so £10,000 in each bank), you’ll find yourself over the £85,000 compensation limit for each bank.

When Moneybox adds a third bank, you’ll have to contact Moneybox to check how your money is split between the three institutions.

The situation is more complicated for savers with Moneybox’s Lifetime ISA as it splits deposits between nine different banks. The only way of knowing how much of your money is held with each bank is by contacting Moneybox.

A statement from Moneybox, read: “We invite customers to get in touch with us if they want to find out specifically which banks we use, and we can also tell them how much of their money is held with each bank so they can assess their funds held against the FSCS limits. However, as stated on our website we will never hold more than 50% of the cash held with a single bank at any given moment.”