Cash within vanguard 😫

Sharktail

Currently, the interest on cash balances is earned at a variable rate. This variable rate is based on the interest rate we receive from our bank. We do not charge a service fee for holding your cash – but we do keep up to 0.20% of any interest we receive on your cash. This is to cover our banking costs. Following the change, interest will be earned on cash balances at a managed rate. This means it is a fixed rate that we will regularly review and update when needed to make sure the amount of interest you receive is fair and offers good value. The rate will be determined by the interest rate we receive from our bank and the cost to us of managing cash within your account. This change will give you greater clarity on how interest is earned on cash balances held in your account. However, it will mean that cash balances may earn less interest than they currently do.

How much interest you’ll receive when this change comes into effect

The interest rate at the date of the change (see below) will be 2.20%. We will keep any extra interest we receive on your cash above this rate to cover our banking costs. You’ll be able to find the latest information about how interest is paid, including the current rate, here.

NedS

Ouch - Vanguard have obviously cottoned on to the fact they were paying far more interest on cash balances than other providers and someone was obviously tasked with selling as a positive to their customers that they are cutting the rate to 2.20% as that is clearly easier to understand than a variable rate - 0.2%

Time to buy a short term money market fund if you're sat on cash in a Vanguard account.

https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-investor-gbp-income-shares/overview

Pat38493

That link shows return rates that are lower than 2.2% or am I missing something there?

plumb1_2

Bad news for me, I was hoping it going up from the nice 3% I get. 

Got £50k cash in my sipp , good while it lasted, have look into investing in a fund now 

NedS

Pat38493 said:

That link shows return rates that are lower than 2.2% or am I missing something there?

It's an income fund, so look at the distributions for the last couple months and annualise them. Performance is backward looking, and rates have risen a lot in the last 12 months

Pat38493

NedS said:

Pat38493 said:

That link shows return rates that are lower than 2.2% or am I missing something there?

It's an income fund, so look at the distributions for the last couple months and annualise them. Performance is backward looking, and rates have risen a lot in the last 12 months

So it's about 3% then - I just need to annualise the number on the distribution screen?

NedS

Yes, although they still look on the low side. I wouldn't choose that money market fund, but Vanguard users are stuck with Vanguard funds. I'm getting ~4% on my money market funds since the last BoE base rate hike.

L9XSS

Just seen the Vanguard email. I was receiving 3% monthly on a cash balance in my SIPP. Need to look at my funds cash split....6 years away from retirement so I’m more cautious with my investments as my SIPP is purely for bridging gap from 62 to 67 years of age.

L9XSS

NedS said:

Yes, although they still look on the low side. I wouldn't choose that money market fund, but Vanguard users are stuck with Vanguard funds. I'm getting ~4% on my money market funds since the last BoE base rate hike.

Can I ask which platform you are using to get that rate of interest from a Money market fund?
i don’t know much about them as have previously invested in ETFs and Vanguard LS 80/20.
Maybe I should look at moving some SIPP cash into a short term money market fund?

NedS

L9XSS said:

NedS said:

Yes, although they still look on the low side. I wouldn't choose that money market fund, but Vanguard users are stuck with Vanguard funds. I'm getting ~4% on my money market funds since the last BoE base rate hike.

Can I ask which platform you are using to get that rate of interest from a Money market fund?
i don’t know much about them as have previously invested in ETFs and Vanguard LS 80/20.
Maybe I should look at moving some SIPP cash into a short term money market fund?

I currently use both Royal London short term money market fund and the CSH2 ETF, both on HL accounts. Fees are 0.45% for the RL fund, but fees are capped at £200/year for ETFs so I'm essentially holding that for free as I'm already at the cap. Most money market funds that aim to track SONIA (3.97%) should currently be returning around that.

Like you, I'm using them to de-risk as I approach retirement. I had large holdings in dividend-paying Investment Trusts yielding 4.75% dividend and asked myself why take the risk for a 4.75% yield with the FTSE100 at all time highs when I can get 4% risk free, so I'm happy to sit on risk free cash at 4% waiting for an opportunity to re-enter markets at a lower price and less risk.

Albermarle

plumb1_2 said:

Bad news for me, I was hoping it going up from the nice 3% I get. 

Got £50k cash in my sipp , good while it lasted, have look into investing in a fund now 

I do not think a drop in interest of rate of 0.8%, should mean a complete change of strategy from holding cash, to investing.
Investing may well be the best idea, but if so it was probably a good idea before this change.