Cash within vanguard 😫

Clive_Woody

NedS said:

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

I think it was Monevator who sent out an email saying how good the VG cash rates were....which no doubt promoted an influx of cash and a subsequent review of their rates (downwards).

NedS

Clive_Woody said:

NedS said:

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

I think it was Monevator who sent out an email saying how good the VG cash rates were....which no doubt promoted an influx of cash and a subsequent review of their rates (downwards).

It does seem somewhat strange though - if their business model is to charge a 0.2% platform fee for assets under management, then paying 0.2% less than what they can earn on your cash holdings seems commensurate with that - they are earning 0.2% off you regardless of whether you hold your assets in cash or invested in funds/ETFs. Perhaps the temptation to earn a little more on cash holdings was just too much for them, but I would have thought that the free publicity driving inflows would have been beneficial overall.

Albermarle

NedS said:

Clive_Woody said:

NedS said:

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

I think it was Monevator who sent out an email saying how good the VG cash rates were....which no doubt promoted an influx of cash and a subsequent review of their rates (downwards).

It does seem somewhat strange though - if their business model is to charge a 0.2% platform fee for assets under management, then paying 0.2% less than what they can earn on your cash holdings seems commensurate with that - they are earning 0.2% off you regardless of whether you hold your assets in cash or invested in funds/ETFs. Perhaps the temptation to earn a little more on cash holdings was just too much for them, but I would have thought that the free publicity driving inflows would have been beneficial overall.

Maybe it is as simple as that. They maybe had some internal target to increase market share, and used this clever wheeze to bring in some new punters, before reducing the rate again. Like savings providers do.

cloud_dog

Albermarle said:

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.

I think the drop will be more like 1.4% based on the newer 4% BoE base rate, e.g. Vanguard would likely be paying a net c. 3.6%.

It was a good wheeze while it lasted, and I will likely wait until mid March, but I will be transferring back to AJ Bell, as I will be able to achieve a high return on the cash component (much more than 2.2% and maybe slightly less than the c. 3.6%) at a lower cost cap using CSH2.  The current investments simply remain invested.

L9XSS

NedS said:

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.

Thankyou for your detailed answer, it’s helped my understanding and given me an insight into money market funds.

dunstonh

Many of the platforms pay interest but all that I am aware of have a cash management charge in the same way Vanguard has.  If Vanguard didn't have it previously, then it's more likely it was a mistake that has been corrected than an intention to bring in new money and then snag it.

I never read the before and after text but perhaps it was always there and third party articles made a mistake?

NedS

L9XSS said:

NedS said:

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.

Thankyou for your detailed answer, it’s helped my understanding and given me an insight into money market funds.

Whilst interest rates were near zero for the last decade, money market funds were pointless for retail investors as the platform fees were often as much if not more than the rates on offer, but that has all changed in the last year with rising base rates.

They are not suitable for long term holdings, but if you just want somewhere to park some cash in the short term whilst deciding where (or when) to invest it or are in drawdown and want the next 12 months withdrawals held in cash (or near cash), then at least it's giving you some return now. Don't forget rates will fall if/when BoE starts cutting rates again.

Sharktail

Very tempted now to switch to HL & build a bond ladder rather than a purchase fixed term annuity is anyone aware if there’s a spread involved when purchasing individual gilts within a sipp ??

NedS

Sharktail said:

Very tempted now to switch to HL & build a bond ladder rather than a purchase fixed term annuity is anyone aware if there’s a spread involved when purchasing individual gilts within a sipp ??

Do you mean spread as in between the bid and offer price?

Whenever I've looked on HL, they tend to price with a £1 spread, but the price you pay is the midpoint. For example:

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

is currently listed at sell £93.10 and buy at £94.10, and the price will be the mid-point of £93.60 if you look at the days trades.

However, bid/offer spreads are not really relevant if you are buying a gilt and holding to maturity in a bond ladder so perhaps I have misunderstood your question?

If it's a fixed term annuity, it should be straight forward to calculate if current gilt rates can match (or beat) the annuity.

Sharktail

NedS 

If it's a fixed term annuity, it should be straight forward to calculate if current gilt rates can match (or beat) the annuity.

Straight forward Really  ,for an 8 year annuity 220k less 25% tax free I’d receive an extra 24k 0n 165k over an 8 year period whereas I’d receive more by building a bond ladder as I have no need for the tax free element ….I think