📈 Now available: EVEN higher interest on uninvested cash!

I know you keep saying this, but I haven’t been able to find anything to support this. I can’t speak for most of Europe, but I certainly don’t see how this could fit into my local (Latvian) tax code; and when I search in English, all I get is either no mention of taxing or, in fact, explicit mentions that QMMF gains are taxed as interest.

Yes, T212 asks for our permission to allow to invest the money in QMMF. Based on what every source I’ve found seems to focus on, as well as my own intuition, this seems required due to potential differences in money protection schemes: if someone somewhere in the chain goes bust (or gets arrested, etc.), the way to get our money back may be more complicated than if it just sits in a bank account, due to different regulations. No sources mention any taxing differences.

For one thing, again, we’re not directly buying QMMFs. We can do that even on T212 if we want to, e. g. I see people suggesting CSH2. You can buy and sell CSH2 like any other stock on T212. Then you’ll actually own the fund’s stock, maybe get dividends, and get capital gains when you sell. When I hold cash in a QMMF-backed interest account, I don’t buy or sell stock. If I did, I should be able to access records of each buy, each sell, in my name; heck, I should at the very least be able to tell how much of this stock I own at any time. AFAICT none of the QMMF-backed interest accounts tell you this; you just seem to hold cash in them. Besides, to produce daily gains, if they’re dividends, the stock should be paying out dividends daily.

My impression is that this is precisely why QMMFs are specially designated and why the “cash equivalent” phrase is used: the broker is allowed to use them (with your consent) as the backing store because they’re so reliable, but at the same time make it look like you’re holding plain cash for all intents and purposes. Including taxing.

Edit (inserted paragraph): In other words, we’re asked to allow the broker to back our accounts with some less-liquid storage than they’re normally permitted to. But the broker still owes us cash, and any income or losses from their assets are theirs to keep. In exchange for this arrangement, the broker promises to share some of that income with us, but it’s the broker that we receive this compensation from, in the form of interest; and it’s the broker that defines how much it will be, whether a middle-term fixed rate (like T212) or a daily rate tied somehow to the fund’s market performance (like Revolut or Wise IIUC).

But even if we suppose that I do own QMMFs directly, I’m not convinced that even then their gains are always dividends. It may depend on how exactly they’re held. Some are accumulating funds that declare no dividends, so at least in some jurisdictions*, any income would be capital gains upon selling, and until then, not subject to taxation at all. For distributing funds, the picture is muddier. The fund’s underlying source of income is the money market, which doesn’t qualify as dividends here at all, because dividends are defined to come from a company’s profit and to be unrelated to lending/borrowing: the money market pays interest, not dividends. But the fund itself is traded like a company, especially an ETF. But then, is it “profit”? I actually don’t know how this should be handled, and I genuinely suspect my tax authority doesn’t, either. (*FWIW, if they’re treated as dividends, then accumulating funds don’t help in my jurisdiction: here, accumulated dividends—but not interest—must be reported and taxed the same as distributed ones.)

QMMF is simply another type of fund. Funds can have Interest or Dividend Distributions. QMMFs pay Interest distributions. The idea is they are meant to maintain a stable NAV of 1 so no capital gains, and pay a distribution in a form akin to interest. The underlying assets the fund(s) hold are money market instruments - short term do they frequently receive returns in the form of interest.

Effectively they act and are considered cash equivalents, so you are taxed the same as cash. £1 should always be £1, so no capital gains, and the returns you receive are in the form of interest,

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I still see rate of 1.60% (APY) on EUR. Is that an error?
I thought APY will increase to 4.20% on January 11th.

Have you opted in through the “Earn interest on cash” menu item? The 4.2% will show after you do that.

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That’s it. I didn’t know I have to opt-in specifically, thought it will be auto applied.

Thanks for the advice!

Funds can have Interest or Dividend Distributions. QMMFs pay Interest distributions. […] The underlying assets the fund(s) hold are money market instruments - short term do they frequently receive returns in the form of interest.

Thanks! Yep, this makes sense to me. The underlying assets, if I were to hold them directly, are definitely classified as interest-paying assets here. So treating these payments as dividends when the fund redistributes them seems odd.

When DeGiro had MMFs to park the customer funds, they showed daily movements of it, with the buy and sell transactions in each customer daily account statement mentioning the details of it. Perhaps some neobrokers don’t show it due to their nature (technical and financial knowledge).

It will be interesting to know how T212 will treat the MMF movements in their customer statements. Will they appear in the daily statements?

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(related to the “interest” vs “dividend” income debate and for simplicity, not quoting all the previous text):

See the Lightyear’s USD MMF BlackRock ICS US Dollar Liquidity Fund Premier Distributing Shares USD - KIID from the BlackRock page:

image

Funds and ETFs can invest in several types of assets that can produce capital gains, dividends (stocks, other funds/ETFs, REITs, ITs), interests (bonds, ABS, MBS, CLNs, ELNs, bank deposits, loans), royalties (intellectual property forms), rents (real estate, equipment) and other more exotic sources of income.

In the end, funds and ETFs, can a) accumulated it (Accumulation versions) and reinvest them or b) pass part of the income to their investors (Distribution versions) and when they pass their income they pass it in the form of dividends, independently from where they originate first.

I think Ireland tax authorities also have some issues related to accumulation ETF/funds, but I’m not an Irish resident, maybe someone can contribute in that matter.

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Funds and ETFs legal structures in Europe, are mainly companies and less common, as contract form. Depending on domicile where they are constructed.

See the Morningstar page related to the above mentioned MMF:

image

But without any more details from T212, we can’t have a full picture of their QMMFs and their treatment in T212 customers’ daily statements.

Two new changes as of today, 15. 1. 2024:

Not necessarily, as this assumes that QMMFs are the only product producing these returns. As we’ve mentioned previously, we use a mix of different products, such as current accounts and time deposits with banks, along with QMMFs.

If interest rates change, for example, the Bank of England raises or decreases them, and the products can’t produce the same return, we’ll adjust our rates as well.

Shortly before we begin using QMMFs, we’ll notify you in advance how they’ll be displayed in the client statements.

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@G.G putting it more simply. Will I receive the advertised interest rates (currently 5% for GBP) or not?

Yes. Just make sure you enable it from Earn interest on cash on your app.

Great, thanks for clarifying.

In that case, looking at this question from the FAQ. Is this just there for info? Are you saying the below doesn’t impact the interest rate a customer receives? (i.e. the customer always gets the advertised rate, obviously the advertised rate is subject to change)

Can QMMFs go down in value?

We use a mix of different products such as time deposits and current accounts at major banks like JPMorgan and Barclays, and qualifying money market funds.

Money at banks is held separately from our own funds in separate client money bank accounts.

QMMFs are money market funds required to maintain a low-risk strategy by investing in financial instruments such as government bonds. Due to the high regulatory scrutiny, high liquidity, and stability of value, they are considered to be cash equivalents. They are typically used by pension funds to hold large amounts of money in a safe way, with over €1 trillion being held in QMMFs in Europe. Just as with any other investments we hold, your money in QMMFs is kept strictly separate from the assets of Trading 212. A QMMF can lose a part of its value, for example, it can drop in value by 1%, however, we carefully select all QMMFs to ensure that they maintain a low-risk strategy.

I’m not trying to be difficult. I’m just finding some of the supporting info to be unclear.

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Yes, you always get the stated interest rate. However, that rate is subject to change with a one-day notice period.

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I would like make use of this interests and move some of my cash to Trading 212… specially the short time money I put aside in vaults in Revolut. I have tried to use the Pie feature to keep the funds segregated (just like in vaults), but I cannot seem to do it. Is there a way to have a pie with only cash and no actual components in the pie?

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I just want to confirm, in case I change my mind at a later date (unlikely):

Once we have accepted the agreement in the T212 app, is it possible to change our mind at a later date and return to the previous interest rate arrangement?

There isn’t at the time. We’ll take the suggestion into account, nevertheless :pray:

You’re unable to select the prior APY, but you have the option to opt out completely at any time.

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Thank you @G.G. That would bring a lot of value in the context of this new interest rates.

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That would be a great feature!

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It’s still not clear to me after having read the help section and also skimmed throgh this discussion whether this is “just cash” and treated as such for tax purposes (i.e. I declare in my UK Self Assessment and pay my marginal rate income tax on excess of my savings allowance), or if this is actually investing my cash in a money market fund (like Wise Assets do with the BlackRock ICS funds) and thus I need to keep track of all the buys and sells (are they even shown in the T212 statement?) and record that for Captial Gains Tax purposes, in addition to any dividend distributions that would be taxed as income, etc.

Can somebody who has activated these please show how these interest payments show up in the T212 history/activity/statement for a taxable Invest account (not the tax-free UK ISA)?

Thanks

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