Interest rates for Life ISA's should be higher?

snowqueen555

I'm currently getting 2.75% on moneybox and have been on this rate for probably a year or so? Why are the rates so much slower to go up on these accounts?

dunstonh

Small value, usually fairly short term, expensive to operate and not a large marketplace.

Alexland

If you are open minded to a little bit of risk consider transferring to a S&S LISA provider such as AJ Bell and investing in a Money Market fund from abrdn, vanguard, etc which holds bonds close to redemption and tends to provide a similar return to a best buy Cash ISA.

https://www.vanguardinvestor.co.uk/investing-explained/what-are-money-market-funds

For example on the Vanguard money market fund the portfolio yield to maturity is currently 4.58% so you can expect just over 4% after the fund manager and platform fees. That's around 50% more return that you are currently getting on your Cash LISA. The bonds are very close to redemption (23 days on average) so you won't see the capital valuation moving as you would with longer dated S&S investments however there is always the risk of a default (although these are not junk credit ratings) or the fund getting gated although that would be very unusual for this type of investment.

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

The return will be variable over time as it depends on the yield to maturity of the bonds being regularly bought by the fund to replace those that have been redeemed.

snowqueen555

dunstonh said:

Small value, usually fairly short term, expensive to operate and not a large marketplace.

True, however rates have gone up a lot since then so I don't think costs have increased, they just don't want to pass the savings over.

OnlineDonkey

Moneybox interest rate went up to 3.25% today, I think there will be more competitive options soon.