Interest on uninvested cash in a SIPP?

[GeoffF100]

In my SIPP and ISA accounts, I let a year of dividend income build up and then draw down in March before the end of the tax year. The interest paid by the investment platform on this cash is pretty derisory. I suppose it's one way they make money for themselves.

However, now that 5% interest is available on the High Street, is there a way for me to get a better interest rate on the money between receiving it and drawing it down? Like from today, there's several thousand pounds that could be getting interest until drawdown in March 2024. But it isn't.

I have looked at various collective investments with cash or money in their names. But it seems they're invested in a portfolio of short dated bonds. I really do not want anything that's not cash getting interest.

Are there any investments you can hold in a SIPP or ISA that are real money invested for interest? Thanks.

Short Term Money Market funds are pretty much that. There is default risk nonetheless. There is no compensation scheme for that. The risk is tiny compared with bond funds, and almost non-existent in comparison with equities. What matters is your overall portfolio risk. The Royal London fund is a popular one.

[BullDog]

Are there any investments you can hold in a SIPP or ISA that are real money invested for interest? Thanks.

Short Term Money Market funds are pretty much that. There is default risk nonetheless. There is no compensation scheme for that. The risk is tiny compared with bond funds, and almost non-existent in comparison with equities. What matters is your overall portfolio risk. The Royal London fund is a popular one.

Thank you for that. I would never have found that myself. It's as close to cash deposits as I think I'll find. This is it?

https://digital.feprecisionplus.com/fac ... Category2=

[simoan]

Short Term Money Market funds are pretty much that. There is default risk nonetheless. There is no compensation scheme for that. The risk is tiny compared with bond funds, and almost non-existent in comparison with equities. What matters is your overall portfolio risk. The Royal London fund is a popular one.

Thank you for that. I would never have found that myself. It's as close to cash deposits as I think I'll find. This is it?

https://digital.feprecisionplus.com/fac ... Category2=

You need to be aware of the liquidity risk of Money Market Funds. These are open ended vehicles that hold short duration bonds with the risk to liquidity that entails during times of financial stress. Much has been written about them since the GFC and more recently the COVID crash of March 2020. There is a document on the FCA website that provides more detail: https://www.fca.org.uk/publication/disc ... dp22-1.pdf

All the best, Si

[BullDog]

Thank you for that. I would never have found that myself. It's as close to cash deposits as I think I'll find. This is it?

https://digital.feprecisionplus.com/fac ... Category2=

You need to be aware of the liquidity risk of Money Market Funds. These are open ended vehicles that hold short duration bonds with the risk to liquidity that entails during times of financial stress. Much has been written about them since the GFC and more recently the COVID crash of Match 2020. There is a document on the FCA website that provides more detail: https://www.fca.org.uk/publication/disc ... dp22-1.pdf

All the best, Si

Ah, yes. Open ended fund. Be just my luck for there to be another banking crisis or something a day before I want to withdraw my money. Banking crises seem almost the new normal these days. Thanks for mentioning that.

[GeoffF100]

Yes, that is the fund. The loans are of a very short duration. The fund will be gated (i.e. suspended) if there is flood of redemptions. Nonetheless, everyone should get their money when enough loans have been repaid to meet the redemptions. The Royal London fund barely hiccuped in 2008, and the regulations have been tightened sice then. There were a couple of very small down moves that were recovered the next day, IIRC from the graph. Nonetheless, it is best to avoid trading on obviously turbulent days.

[BullDog]

Yes, that is the fund. The loans are of a very short duration. The fund will be gated (i.e. suspended) if there is flood of redemptions. Nonetheless, everyone should get their money when enough loans have been repaid to meet the redemptions. The Royal London fund barely hiccuped in 2008, and the regulations have been tightened sice then. There were a couple of very small down moves that were recovered the next day, IIRC from the graph. Nonetheless, it is best to avoid trading on obviously turbulent days.

Thanks again. I'll have to think carefully if the admittedly small chance of a problem with the fund being temporarily gated is worth taking. If I understand properly the fund has a current interest rate of nearly 5%. So that's more than 5x what II pay me for cash in the SIPP. There's accumulating cash sitting there from April until drawdown next March.

[GeoffF100]

[Thanks again. I'll have to think carefully if the admittedly small chance of a problem with the fund being temporarily gated is worth taking. If I understand properly the fund has a current interest rate of nearly 5%. So that's more than 5x what II pay me for cash in the SIPP. There's accumulating cash sitting there from April until drawdown next March.

It does not have to be all or nothing. You can keep a small amount of cash to tide you over for a few weeks. The RL fund tracks SONIA:

https://www.global-rates.com/en/interes ... sonia.aspx

It may return a little less than SONIA after costs.

[BullDog]

[Thanks again. I'll have to think carefully if the admittedly small chance of a problem with the fund being temporarily gated is worth taking. If I understand properly the fund has a current interest rate of nearly 5%. So that's more than 5x what II pay me for cash in the SIPP. There's accumulating cash sitting there from April until drawdown next March.

It does not have to be all or nothing. You can keep a small amount of cash to tide you over for a few weeks. The RL fund tracks SONIA:

https://www.global-rates.com/en/interes ... sonia.aspx

It may return a little less than SONIA after costs.

Thanks. It seems the fund is very low cost, 0.1% management fee. The SIPP drawdown money is spending money really. Not money that I need to live off. If it took a week to get the money out in reality that would not be an issue. Perhaps being an open ended fund isn't really an issue. I know property funds are a very bad idea, they can be gated for months. I can't see the RLAM fund doing that really.

[GeoffF100]

[Thanks. It seems the fund is very low cost, 0.1% management fee. The SIPP drawdown money is spending money really. Not money that I need to live off. If it took a week to get the money out in reality that would not be an issue. Perhaps being an open ended fund isn't really an issue. I know property funds are a very bad idea, they can be gated for months. I can't see the RLAM fund doing that really.

The institutional share class is much cheaper still, but it is not available to us. RL could be gated for weeks. A property fund could be gated for years, and mayfall drastically in value when it reopens. Having RL gated may be better than losing about 1% of your money because you sold on the one wrong day, which happened a couple of times in 2008 IIRC.

The ETF CSH2 is also popular. That will not be gated, but it could sell at a discount to NAV and get a wide market spread. The RL fund has fared better in times of stress.

[BullDog]

[Thanks. It seems the fund is very low cost, 0.1% management fee. The SIPP drawdown money is spending money really. Not money that I need to live off. If it took a week to get the money out in reality that would not be an issue. Perhaps being an open ended fund isn't really an issue. I know property funds are a very bad idea, they can be gated for months. I can't see the RLAM fund doing that really.

The institutional share class is much cheaper still, but it is not available to us. RL could be gated for weeks. A property fund could be gated for years, and mayfall drastically in value when it reopens. Having RL gated may be better than losing about 1% of your money because you sold on the one wrong day, which happened a couple of times in 2008 IIRC.

The ETF CSH2 is also popular. That will not be gated, but it could sell at a discount to NAV and get a wide market spread. The RL fund has fared better in times of stress.

Thank you. This is a great education for me. I know nothing about this kind of asset class.