SONIA tracking fund in an ISA vs easy-access cash ISA rate 1 March at 2:08PM in Savings & investments 32 replies 1.5K views

mark_cycling00

Hi, I wondering if I've understood the costs and risk with both options so I can make the best decisions over the next few years. I'm happy to learn anything especially if I'm wrong about things!

SONIA tracker (e.g. Royal London Short-term Money market, mentioned on posts in this forum)

• Should grow by 3.93%pa (as of today) but this rate can vary
• Can sell quickly, seems to have no price-spread but the price on the day isn't 100% predictable and may vary
• Initial cost of purchase e.g. £10 trading fee plus the same to sell
• 0.1% ongoing charge

If we assume 3.93% lasts for a year then £10,000 investment = £363 growth per year with the various costs applied.


Easy-Access cash ISA

• Best rate today = 3% but this is variable?
• No other costs but expect a week or so from application until you money starts earning interest
• For many ISAs there are restrictions on not accepting S&S ISA transfers, not allowing split-ISA allowance

Some more details: yes I have fixed-rate ISAs and S&S ISAs, I'm negotiating the two options above for the easy-access element.

many thanks. 

cwep2

Yes you have this basically correct.
If you need to make multiple small value withdrawals then obviously the £10 trading fee can add up.

One factor to check is whether your ISA provider charges a % fee based on funds in your ISA, some do, some don't.  If yours does then this would also affect returns. Personally I use iWeb which charges £5 trading fee and no further charges, some of those which charge will give certain number of free trades so there is a trade off.

I did this recently myself, and have been watching the price of this fund (the ACC version) price steadily rises, but not exactly straight line. I bought on 16th Feb, price was 1.039793, the price for 28th Feb was 1.041154 which implies a 3.98% annual return, *but* the previous day 27th Feb was 1.040999 which worked out at 3.85% annual return.

Sonia rate is around 3.92% so after such a short time seems to be fluctuating around this level, the longer one holds it, one would expect the returns to be less volatile. The market expects the Bank of England rate to go up a couple more times this year, the Sonia rate tends to move on the day by almost exactly the BoE hike, so can expect this to track future rate moves from BoE. ISAs tend to have much more of a time lag to react to BoE rate changes and also haven't kept up same pace unless they are specifically rate trackers. So in a rising interest rate market this sort of fund will tend to outperform eve more than the amounts above. The converse will be true in a falling interest rate market, but depends on the absolute levels.

GeoffTF

Once the money is in your account, provided that you meet the cut off time. you will own units in the fund the next morning. You will lose part of your ISA allowance if you withdraw money, unless it is a Flexible ISA. The return will be part interest and part capital gain, but that will not matter if you are using an ISA.

mark_cycling00

Thanks for your replies. This is reassuring to hear. 

I also bought a bit of royal London a few weeks ago and it does seem to track about 3.8% but I didn't want to do more unless I'd really understand any other risks and costs 

Stargunner

mark_cycling00 said:

Thanks for your replies. This is reassuring to hear. 

I also bought a bit of royal London a few weeks ago and it does seem to track about 3.8% but I didn't want to do more unless I'd really understand any other risks and costs 

What ISA provider did you buy them from, as most charge for holding funds. iWeb, which is  popular on here doesn’t charge to hold funds, but it doesn’t appear to offer the Royal London money market fund. 

artyboy

Mrs Arty just moved about 25% of her Vanguard SIPP into their sterling money market fund - part of the mindset shift that goes with knowing it's accessible within a couple of years. 4% might not keep up with inflation but it's not a bad compromise for stability...

mark_cycling00

It's from my spare cash in HL isa account.

I have vanguard isa account too but can't see a Sonia tracker on it. 

Agree it might be good to ytanfyrrom HL to iweb 

artyboy

mark_cycling00 said:

It's from my spare cash in HL isa account.

I have vanguard isa account too but can't see a Sonia tracker on it. 

Agree it might be good to ytanfyrrom HL to iweb 

Vanguard has a fund - it's called the 

Sterling Short-Term Money Market Fund

- if you're logged in and doing a switch, it's under the fixed income list but you have to toggle the 'show income funds' switch on, otherwise I've found it's not visible by default.

GeoffTF

Stargunner said:
What ISA provider did you buy them from, as most charge for holding funds. iWeb, which is  popular on here doesn’t charge to hold funds, but it doesn’t appear to offer the Royal London money market fund. 

I recently bought units in the Royal London Short Term Money Market Fund Y Income with iWeb. Select Royal London as the manager and you will find it. It appears to be possible to use the bed & ISA facility over the phone to sell in the trading account and trade with the money in the ISA immediately. I do not know what the settlement time is for cash withdrawals though. It is probably the day after the trade executes or the day after that.

GeoffTF

artyboy said:

mark_cycling00 said:

It's from my spare cash in HL isa account.

I have vanguard isa account too but can't see a Sonia tracker on it. 

Agree it might be good to ytanfyrrom HL to iweb 

Vanguard has a fund - it's called the 

Sterling Short-Term Money Market Fund

- if you're logged in and doing a switch, it's under the fixed income list but you have to toggle the 'show income funds' switch on, otherwise I've found it's not visible by default.

It is under global fixed income, which is not very helpful. It has only £100 million market capitalisation, and the returns do not look particularly good. It may be lower risk than some of the other money market funds though.

artyboy

GeoffTF said:

artyboy said:

mark_cycling00 said:

It's from my spare cash in HL isa account.

I have vanguard isa account too but can't see a Sonia tracker on it. 

Agree it might be good to ytanfyrrom HL to iweb 

Vanguard has a fund - it's called the 

Sterling Short-Term Money Market Fund

- if you're logged in and doing a switch, it's under the fixed income list but you have to toggle the 'show income funds' switch on, otherwise I've found it's not visible by default.

It is under global fixed income, which is not very helpful. It has only £100 million market capitalisation, and the returns do not look particularly good. It may be lower risk than some of the other money market funds though.

No agreed, could be more intuitive. Does state that its benchmark is SONIA so whilst the fact sheet returns don't look good (due to historic rate lag), I'm hoping that it will return close to 4%...