[Beginner question] low-risk investment in USD?

Chocozor

Hi everyone 👋

A while back I exchanged some of my pounds to dollars because of the uncertainties brought by Brexit.

Currently, the (low 5 digit number) amount is sitting in an account and while my original intention was to trade them back to pounds and put them back in a savings account, I have now decided to keep that portion on my personal funds in dollars.

My question is: what is the low(est) risk and less time-consuming way to get a few % of interest on the dollars amount i.e. something with a similar overhead as an ISA or P2P lending platform?

Please share your wisdom!

bowlhead99

Dollar bank accounts in the UK don't really pay any significant amounts of interest on a low five digit number, and may even cost you fees to maintain the account. Though it sounds like you already have them in an account. The advantage of having the dollars in any kind of cheap account rather than in cash is that the money would be safe from (e.g.) fire and theft. Hopefully your account is with a bank rather than just an FX broker that doesn't offer full FSCS protection if he goes bust.

You could get an interest paying bank account and access to dollar-based P2P in the USA by taking up residence in the USA, but sounds like an extreme solution.

But really the UK is not the best place to find competitive US dollar based savings opportunities.

One option would be just to transfer into a UK or European brokerage account which accepts dollars and buy some US-based investments with the dollars. But that doesn't work for 'lowest risk' ; the USD cash fund in the current markets is not going to return materially more than the management fees and investment platform account operating fees, while the higher risk equity- or bond- or mixed-asset-based fund options will expose you to as much or greater potential loss as you already have from currency effects.

So, a low risk and cheap way to get a few percent a year on a few thousand USD cash is not really going to happen.

londoninvestor

bowlhead99 wrote: »

But that doesn't work for 'lowest risk' ; the USD cash fund in the current markets is not going to return materially more than the management fees and investment platform account operating fee

This is probably about as good as you'll get - 0.09% OCF, typically a 0.06% bid-offer spread and yields 2.16%.

https://www.ishares.com/uk/individual/en/products/258117/ishares-ultrashort-bond-ucits-etf

bowlhead99

londoninvestor wrote: »

This is probably about as good as you'll get - 0.09% OCF, typically a 0.06% bid-offer spread and yields 2.16%.

https://www.ishares.com/uk/individual/en/products/258117/ishares-ultrashort-bond-ucits-etf

Yes, a super short-dated bond fund could get you a couple of percent a year, though OP should note that 'yield' is not everything as the capital value will change over time - according to the factsheet the year to March it had a total return of about 2.7 to 2.8%, which was in excess of its yield, though that could of course go the other way instead. While investment-grade bonds with durations under 1 year are relatively liquid and credit worthy things to hold, there is still credit risk and counterparty risk when investing into a portfolio of them through an ETF, and ETFs do not have FSCS protection.

That ETF can be bought in the London stock exchange priced in dollars, but relatively few UK brokers will accept dollars to fund your account with them without wanting to instantly convert it to sterling, so you can end up with excessive conversion fees that eat up your annual return. And when you narrow it down to the few suitable brokers, you may find your preferred option has an account maintenance fee of more than £0 per year.

Voyager2002

bowlhead99 wrote: »

That ETF can be bought in the London stock exchange priced in dollars, but relatively few UK brokers will accept dollars to fund your account with them without wanting to instantly convert it to sterling, so you can end up with excessive conversion fees that eat up your annual return. And when you narrow it down to the few suitable brokers, you may find your preferred option has an account maintenance fee of more than £0 per year.

Both problems can be avoided by using Fineco bank: you can hold US dollars in their multi-currency account and use it to buy USD-denominated securities, including ETFs. Let me know if you would like a referal code.

Chocozor

Thanks for the great advice everyone!