Is Trading 212 safe for trading, investing & ISAs?

Trading 212 should be considered a safe investment platform and app for UK customers as they are regulated by the FCA and have to adhear to specific capital requirement conditions and treat customers fairly. But, as will all investing it is possible to lose money when investing or trading through them, so you should not consider your investment decisions as risk free, especially if you are trading CFDs which are very high risk.

Is you cash money safe in a Trading 212 ISA?

A reader recently wrote in to Good Money Guide concerned about the safety of their savings in a Trading 212 cash ISA, so Laura Miller investigates.

The problem:

I am not a risk taking investor – I just research where my old age funds are best invested at no risk.

Obviously the T212 no risk ISA is attractive and I get that it’s a loss leader to try and draw you into the higher risk investments. I liked your YouTube article on T212. I like T212’s app & their approach is refreshing, but…

As T212 are saying the ISA monies are FSCS covered as are held in/across the banks they reference to, I wanted to know (preferably in a nutshell) – if they are not directly recognised by the FSCS how do we or indeed the FSCS know where the monies are held in the unlikely event things go awry with T212?

I emailed T212 with that question and I got a generic response reflecting the generic FSCS spiel. So for me I held back from putting or transferring ISA monies to the ISA account I had opened and opted for Paragon as a safer bet.

Wonder if there is a simple answer to this reticence on my part where I just lack knowledge  or whether it’s an issue that others are asking.

Appreciate a view from you.

The solution:

Let’s look first at what Trading 212 – also known as T212 – says about how your money is protected.

Its website says customers’ money – cash and investments – is held in client money bank accounts at some of the world’s largest banks – and kept completely separate from T212’s own bank accounts.

Customer money is ring-fenced and there are legally binding agreements that your money belongs only to you and no one else.

In terms of investments with Trading 212, these are held at Interactive Brokers – the largest electronic trading platform in the United States by number of average daily trades.

Invested money is ring-fenced and held in a pooled account, completely segregated from T212’s own assets.

So if T212 fails, Interactive Brokers just gives you back your invested cash it has been holding.

Your question, however, was about T212’s cash ISA.

Currently a market leader paying 5.2% interest, if there really is no risk to your capital Trading 212’s cash ISA looks like a very good deal.

You specifically asked about how much protection you would have from the Financial Services Compensation Scheme (FSCS) if you moved money into a T212 cash ISA and T212 went bust.

So I asked the FSCS.

It told me if Trading 212 failed is not covered itself for deposits – which is how a cash ISA is categorised – though it is covered for investments up to £85,000.

However, the FSCS points out T212’s cash ISAs are held with various different banks that are protected by the FSCS – if those banks failed, the FSCS would cover monies up to £85,000 held in the cash ISAs.

The FSCS says the best way for customers to find out exactly which banks hold their T212 ISA money is by asking T212 directly.

They can then check the deposit bank T212 uses and how much of their money is FSCS protected by entering the details into the FSCS Bank and Savings Protection Checker tool: https://www.fscs.org.uk/check/check-your-money-is-protected

Internal teams at the FSCS will know where firms like Trading 212 hold customer money, but that isn’t something the compensation body publishes publicly.

T212 itself gives two examples of banks where it holds client cash, Barclays and JP Morgan, both financial services giants and unlikely to fail – though you’d be FSCS protected if they did.

The response from the FSCS chimes with what T212 says on its website.

If the banks where T212 holds your money fail and they are unable to return your cash, the FSCS can award up to £85,000 in compensation per bank.

It is worth remembering, however – and to its credit T212 points this out – the £85,000 limit applies to the total amount of money you hold at any specific bank, whether it is deposited by Trading 212, other providers, or you.

So for example, if you hold £85,000 of your own money at Barclays, any money you have with Trading 212 also held at Barclays will be above the FSCS protection threshold – and so therefore not covered.

The percentage of your cash held at each bank is listed in the interest on the cash tab in the T212 app.

You asked for clarification in a nutshell – in short a cash ISA with T212 is FSCS protected up to £85,000 in the event the firm fails. But if you do open a T212 cash ISA you should check which bank it is using to hold your cash, so you don’t exceed the FSCS protection per bank threshold of £85,000.