Where to hold CASH in a SIPP or S&S ISA

NedS

With interest rates rising (BoE base rate currently 3.5%), holding cash in a SIPP or S&S ISA is now becoming a major drag, so what to do with cash in these accounts?

Some platforms are now starting to pay decent interest rates on cash deposits. There have been recent threads about Vanguard who are paying BoE base rates less fees (currently ~3.1%), and HL are also paying tiered interest rates of 1.7% to 2.4% on cash held in a SIPP.

https://forums.moneysavingexpert.com/discussion/6420148/3-ish-easy-access-at-vanguard/p1

https://monevator.com/vanguard-cash-interest/

https://www.hl.co.uk/charges-and-interest-rates

So what investments are available for cash that will give a return:

Money Market Funds:

Various money market funds are now starting to provide decent returns, typically around 3.2% at present (look at the annualised returns of ~0.8% for the last 3 months to get a more realistic view of the current state of play). Examples include:

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/abrdn-sterling-money-market-i-accumulation

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/f/fidelity-cash-class-w-accumulation

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-cash-class-i-accumulation

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-short-term-money-market-class-y-accumulation

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-sterling-short-term-money-mrkt-class-a-income

Near Cash ETFs

Or for those who may prefer ETFs to minimise platform holding fees, there are a number of ETFs which seek to track the overnight swap rate index (SONIA) which is currently around 3.43% (e.g, CSH2 and XSTR), although one should also consider trading fees and bid/offer spreads when purchasing ETFs. Again, look at the accumulation charts for the last 3 months to get a view of recent performance.

https://www.bankofengland.co.uk/markets/sonia-benchmark

Government Gilts

Finally, some platforms allow clients to purchase UK Government Gilts directly, and 1 and 2 year gilts are currently returning 3.57% if held to maturity. The advantage of buying a gilt is that you are locking in a guaranteed return if you are prepared to hold to maturity at the disadvantage that rates may potentially rise further.

https://www.hl.co.uk/shares/shares-search-results/t/treasury-0.125-31012024-gilt

https://www.hl.co.uk/shares/shares-search-results/t/treasury-0.25-31012025-gilt

Rates (YTM) on 5 year gilts are a little lower at around 3.27%

The next Bank of England Interest Rate decision is due next week (on 2nd Feb) with the BoE expected to raise rates again, maybe by 0.25% or 0.5%. Current market expectations are that rates are approaching their peak and are not expected to rise significantly above 4%, so now maybe a good time to lock in rates on a 1 or 2 year gilt for cash that is not needed in the very short term.

What else are folks currently using for short term cash holdings in their SIPPs and S&S ISAs?

soulsaver

For info - Interactive Investor Sipp wef 01/02 pays 1.0% on upto £10k; 2.0% above.

Our Trading Charges - interactive investor (ii.co.uk) Scroll down half way to 'Cash'.

MiserlyMartin

Lightyear - paying 3.75% on US$, 3.25% on ££ and 1.75% on € cash balances. I'm not sure of any limit

Freetrade - paying 3% interest on uninvested cash, up to £4,000

As for the BoE, they will continue to raise rates, inflation is still double digit, and that is even by their measure

GeoffTF

The numbers are not up to date here. Money market funds are now paying just under 4%.

brucefan_2

MiserlyMartin said:

Lightyear - paying 3.75% on US$, 3.25% on ££ and 1.75% on € cash balances. I'm not sure of any limit

Freetrade - paying 3% interest on uninvested cash, up to £4,000

As for the BoE, they will continue to raise rates, inflation is still double digit, and that is even by their measure

The Freetrade interest is, if memory serves me well, only available with its Plus Account, which costs £9.99 per month thus completely negating any interest gain on the full £4000 sitting as cash.

David

MiserlyMartin

You are correct. For £9.99 you now get a SIPP thrown in as well. I view it that I'm paying a very small amount for a S&S ISA and a SIPP that I need anyway, so the interest is a bonus, especially as I keep a cash balance in there while watching and waiting to do trades. The likes of fidelity charge you much more to have an account and rarely pay interest on your cash.

Or you can do the Freetrade £4 a month ISA and get 1% interest. I guess the reality of the situation is these low cost trading apps will not be as low cost forever, they have to start making money once the userbase is in.

wmb194

brucefan_2 said:

MiserlyMartin said:

Lightyear - paying 3.75% on US$, 3.25% on ££ and 1.75% on € cash balances. I'm not sure of any limit

Freetrade - paying 3% interest on uninvested cash, up to £4,000

As for the BoE, they will continue to raise rates, inflation is still double digit, and that is even by their measure

The Freetrade interest is, if memory serves me well, only available with its Plus Account, which costs £9.99 per month thus completely negating any interest gain on the full £4000 sitting as cash.

David

But it breaks even versus e.g., iWeb if you make just two trades in a month and then the 3% is gravy. For me it's an easy business case.

eskbanker

wmb194 said:
But it breaks even versus e.g., iWeb if you make just two trades in a month and then the 3% is gravy.

Made from which stocks?

NedS

An excellent video explainer from PensionCraft:

https://www.youtube.com/watch?v=qMTkreV2CRU