AJ Bell’s Dodl app offers 5.09% cash back to ISA investors – is it a good deal?

Clients of AJ Bell’s Dodl investment app will now be able to earn interest on any cash they hold on the app.

Dodl is now offering 5.09 per cent interest on cash held on its app to customers with an Investment ISA or Lifetime ISA.

While Dodl does not offer Cash ISAs or Cash Lifetime ISAs, a 5.09 per cent interest rate will be paid on any money clients hold in cash that is not invested.

Customers will receive the interest on their ISA or Lifetime ISA accounts as a cash payment each quarter.

AJ Bell says the move is part of an effort to get cash savers into investing. Interest on cash balances is available to new and existing Dodl customers.

Dodl was launched in 2022 and is much newer than AJ Bell’s main platform, so it has a smaller customer base.

Now it is looking to attract new clients who have large cash balances that they are not yet investing.

Among consumers with £10,000 or more of investable assets, 9.7 million UK adults held most or all of this amount in cash in 2022, according to the Financial Conduct Authority.

Of these, 4.2 million British adults said they had some willingness to take risks when investing. It is this group that Dodl aims to attract.

Is the Dodl interest rate good?

With a Lifetime ISA you can save up to £4,000 each tax year and get a 25 per cent government bonus.

Dodl’s 5.09 per cent interest rate beats the best current Lifetime Cash ISA, offered by Moneybox, which pays a rate of 5 per cent.

There is no time limit on the Dodl offer, but it is a variable rate that will change in relation to the Bank of England’s base rate.

The base rate is expected to fall soon, with experts predicting the first cut will come in August or September, so savers could see the Dow Jones rate fall.

Moneybox’s Lifetime Isa rate includes a fixed 1% bonus for the first year and the underlying rate is 4%.

When it comes to other savings accounts, the 5.09 per cent rate can be beaten by accounts like Plum’s Cash ISA, which pays 5.17 per cent interest.

Dodl customers obviously also have the option of investing their money in the stock market, which is not the case with other savings accounts.

AJ Bell managing director Charlie Musson said: ‘By offering a leading interest rate on cash deposits on the Dodl app, we are giving customers the flexibility to save and invest in one place.

‘For beginning investors, it gives them the opportunity to build up cash savings and start investing when they feel ready.’

Is Dodl FSCS protected?

All money deposited with Dodl is protected by the Financial Services Compensation Scheme (FSCS). The FSCS protects clients’ money up to a value of £85,000 in the event of the firm going bust.

Dodl’s ISA or Lifetime Investment funds are held in 13 associated bank accounts. These are:

• Bank of Scotland
• Barclays
• Santander UK
• Lloyds Bank, Corporate Markets
• Close brothers
• Virgin money
• Investec Bank
• Lloyds Bank
• Royal Bank of Scotland
• HSBC Bank
• National Bank of Qatar
• Cater Allen Limited
• NatWest Markets

It is not unusual for companies other than banks or building societies to turn to other institutions for FSCS cover.

AJ Bell’s Dodl app relies on these 13 banks for its FSCS protection. Clients’ money is pooled and distributed across 13 banks, with a maximum of 35 per cent placed in each bank.

Three of the 13 banks (Close Brothers, Investec Bank and Virgin Money) have a 15 percent limit, while the rest have a 35 percent limit.

Savers should note that there is no separate coverage limit for client money protected by the FSCS. A client will not know when opening a Dodl account which of the 13 banks will be used for FSCS protection of their funds.

This means that if a customer puts £20,000 into a Dol ISA and places it with Barclays, and that saver already has more than £65,000 with Barclays directly, the amount above this figure will not be protected.

However, a customer would need to have more than £240,000 in cash with AJ Bell to have any chance of reaching the £85,000 limit with either bank, due to the 35 per cent cap on money placed with any one bank.