Easy access accounts vs overnight return ETFs 25 February at 10:41AM edited 25 February at 10:48AM in Savings & investments 2 replies 287 views

sgog

I'm trying to understand the tradeoffs between saving in an easy-access account and "investing" in an overnight return ETF (e.g., LU1230136894).

My understanding, which may not be fully accurate, is this:

1. Gains in overnight return ETFs are subject to CGT and can use the CGT allowance but not the savings allowance.
2. Both are directly affected by the BoE rate, but the Sonia rate is currently over 3.9%, while the top easy access account pays 3.15%. This means that even after deducting the ongoing charges of the ETF, it may still compare favorably.
3. Depending on how you deal, dealing charges may apply for buying the ETF. This may mean that it makes sense only for large amounts or for an extended time. There's also likely to be a market spread
4. Money invested in the ETF is not FSCS protected.

Am I missing anything else? 

GeoffTF

You have got a lot of that wrong. This article and its comments should clarify matters:

https://monevator.com/money-market-funds/

GeoffTF

Money market OEICs are better unless you have to use ETFs to avoid platform fees.

1. The Excess Reportable Income for ETFs is taxed as savings income, but can be allowed against CGT. The money market OEICs are taxed in the same way as bond OEICs.

2. Yes, but the managed funds typically beat SONIA.

3. Yes.

4. UK domiciled OEICs are protected by the FSCS as investments, but not as deposits. Luxembourg domiciled ETFs may be protected as investments by a Luxembourg scheme.

Finally, yes.