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Alternative to No Interest

Any other investment discussions eg. peer to peer lending
TawnyOwl
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Alternative to No Interest

#62965

Postby TawnyOwl » June 26th, 2017, 1:40 pm

I wonder if anyone has some bright ideas of where to stash ISA cash in these days when virtually no interest, or none at all, is paid on cash deposits?

In years gone by I tended to think that banks and supermarkets would do the job nicely but both failed badly. Oil and mining shares are very cyclical. There must be something but I'm at a loss to think what it is. It needs to be rock solid and yield or pay a few percent interest. Capital gain isn't the aim but somewhere to keep cash whilst looking for the next opportunity.

It has to be something easily traded in an ISA without bad margins. Any thoughts?

moorfield
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Re: Alternative to No Interest

#62979

Postby moorfield » June 26th, 2017, 2:31 pm

For me the offset mortgage is the place I normally stash spare or surplus cash, but not everyone here has one of those of course! I'm not to worried about maxing up the full ISA wrapper allowance each year while that is on the books.

Looking at high yielding shares (this is the HYP board after all ;) ), I would next consider topping up my preference share holdings, and particularly the "cumulative" ones if I wanted to add an element of "rock solidness" to the dividend. Example: Aviva's AV.A cumulative dividend currently yields 5.6%, and must be paid in full before the dividend on ordinary shares. Not everyone here likes preference shares in the context of HYP, and remember their prices can and do fall so that's a suggestion for the medium/longer term, but dividends can of course be reinvested elsewhere, held as cash, or spent as desired.

M
Last edited by moorfield on June 26th, 2017, 2:39 pm, edited 1 time in total.

flint
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Re: Alternative to No Interest

#62980

Postby flint » June 26th, 2017, 2:33 pm

TawneyOwl

My preference for parking cash is the Aviva Preference Shares ( AV.A etc ).
Current yield is 5+%. They have performed very well for the last 10 years.

Main risks to your Capital is if interest rates increase or Aviva fail
There may be other risks - DYOR.

Wizard
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Re: Alternative to No Interest

#62997

Postby Wizard » June 26th, 2017, 3:44 pm

flint wrote:TawneyOwl

My preference for parking cash is the Aviva Preference Shares ( AV.A etc ).
Current yield is 5+%. They have performed very well for the last 10 years.

Main risks to your Capital is if interest rates increase or Aviva fail
There may be other risks - DYOR.

The spreads on most of the 'usual suspect' prefs often precludes short term investment, so I question their suitability. The yield on AV.A is about 5.5%, but the spread I see on Hargreaves is 3p, so unless you take two of the semi-annual coupon payments you are getting very little back on your investment. Plus, as they trade dirty they have a tendency to drop back by close to the amount of coupon paid immediately the ex-dividend date passes and then rise as you get nearer to the next ex-dividend date. So unless you buy soon after the ex-dividend date you are usually paying for some of the first coupon payment in the purchase price.

In short IMHO you need to think it through fully before going ahead.

Terry.

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Re: Alternative to No Interest

#63004

Postby Alaric » June 26th, 2017, 4:04 pm

TawnyOwl wrote:I wonder if anyone has some bright ideas of where to stash ISA cash in these days when virtually no interest, or none at all, is paid on cash deposits?


You could consider fixed interest ETFs. No explicit capital guarantee, but you can go for a higher return with the Corporate Bond variety. Less risky than an individual Corporate Bond or Preference Share. There's also fixed interest OEICs. Charges are apt to eat into the returns though.

Until George Osborne redeemed them, undated Gilts used to be a proxy. They wouldn't climb much above 100 because of the option to redeem and they wouldn't drop much below 100 provided the running yield was above cash.

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Re: Alternative to No Interest

#63036

Postby flint » June 26th, 2017, 5:28 pm

TawneyOwl

The " spreads " that you see ( on Level 1 ) for Aviva Preference shares are far greater than you are likely to experience.
If you check out the recent actual trades the spread can be as low as 1p.
In the past I have B&B these shares to move them into an ISA account and have never experienced a spread anywhere near that openly quoted.

You might like to go through the motions of placing orders ( to buy and sell ) with your broker without clicking the final " place an order ", to see what prices you are quoted.

Wizard is quite right in his description of the price movement relative to payment date, however you would not expect to receive 6 months dividend in (say) one months time without expecting to pay a higher price than (say) 5 months before the dividend payment.

I would also agree that Preference shares are probably not suitable for a period of less than a year.
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Re: Alternative to No Interest

#63060

Postby johnhemming » June 26th, 2017, 7:33 pm

I am someone who has held quite a few preference shares, but the capital value has gone up and the yield of the safer ones with a higher nominal yield is now around the 6% mark. Hence if general interest rates go up the capital value will probably go down.

A spread of higher yield equities is probably sensible, but if top priority is not losing any capital then there are not that many options.

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Re: Alternative to No Interest

#63401

Postby TawnyOwl » June 28th, 2017, 12:02 pm

Thanks for your replies. I already have a mountain of AV. which in a way I have been using for this purpose for some years now, with reasonable success. Hadn't thought about the preference shares perhaps because I didn't know they existed.

My investing style is to look for underpriced value shares, usually big shares that can be easily traded at minimum cost. I've had a lot of success with the likes of Tesco, Stagecoach and Dixons. Right now I'm out of such ideas and am basically running an HYP. But I need to make all my money work all of the time.

An idea i've had since posting this topic is drinks companies, a sector I've never looked at. But they say that even if times are bad people keep on drinking perhaps even more than normal. Sounds very solid. My own tested suggestion would be Vodafone, now more of a utility, than a technology company. But I've already got buckets of them. The shareprice is very stable, the dividends keep coming and the margins are minute.

Tawny

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Re: Alternative to No Interest

#63570

Postby UncleEbenezer » June 29th, 2017, 12:35 am

TawnyOwl wrote:It has to be something easily traded in an ISA without bad margins. Any thoughts?

People have suggested prefs or bonds. I would regard those as medium-to-longer-term holdings due to spreads. Or perhaps fixed term in the case of a bond approaching redemption and not in distress.

I hold a couple of bond funds for near-cash liquidity and low volatility. The funds serve not merely to diversify risk, but to shield me from the spread. Though alas, like any lower-risk asset, they're not cheap.

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Re: Alternative to No Interest

#63592

Postby AleisterCrowley » June 29th, 2017, 8:51 am

Possibly not what you're looking for, but I have been looking for somewhere to stash my equities ISA cash balance.
A suggestion (from someone here) was ERNS - ultrashort bond fund
https://www.ishares.com/uk/individual/e ... individual
The return was about 0.7% last time I looked - better than nothing.
I haven't invested yet, as I'm still trying to work out the possible effects of an interest rate rise on the capital value - particularly if there's any long-term risk to capital. Which will be another post, when I get round to it.

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Re: Alternative to No Interest

#63604

Postby Alaric » June 29th, 2017, 9:38 am

AleisterCrowley wrote:'m still trying to work out the possible effects of an interest rate rise on the capital value - particularly if there's any long-term risk to capital.


https://www.ishares.com/uk/individual/e ... hartDialog

If you look at the chart, the price does wobble from time to time. A rise in interest rates would reduce the price of the underlying bonds and thus the ETF's value. The other risk is an asset default or similar on one of the Bonds in the portfolio.

I've put money into a similar ETF, but one that targets longer dated bonds. That's obviously higher risk, but higher return as well, 2.5% to 3%.

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Re: Alternative to No Interest

#63615

Postby AleisterCrowley » June 29th, 2017, 10:06 am

There's the obvious sawtooth as coupons accumulate and get paid out twice a year, and underlying short term noise.
Question for me is - do they hold all bonds to maturity? If they do there should be no long-term capital loss (????)
http://www.hl.co.uk/shares/shares-searc ... bond-ucits

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Re: Alternative to No Interest

#63616

Postby Alaric » June 29th, 2017, 10:14 am

AleisterCrowley wrote:Question for me is - do they hold all bonds to maturity? If they do there should be no long-term capital loss (????)


Being an ETF, it aims to track an Index. Presumably such an Index would have a constant duration to maturity. Arguably if interest rates and coupon were 0.5% and the duration to maturity 1 year, the price would be around 100. If interest rates increased to 2% with no immediate change to coupons, the price would likely drop to around the 98.5 mark.

I think funds of Bonds are going to behave a little differently to individual bonds if interest rates rise.


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