Choosing a Money Market fund

Pat38493

If I want to choose an investment that is as much like a savings account as possible, I understand that means I should pick a money market fund?

Background - since I have to de-invest my fund to transfer to II, and I want to have the option to pay off my mortgage on retirement with TFC, I am thinking to put 25% of my fund into MM as it would then be used in about 2 years from now.  Also considering moving my employer contributions to go to MM going forward to get the TFC portion of that up.  My original plan was just to have everything in 80% equities which is not too bad, but putting the approximate TFC portion already into cash like assets seems to give better success probabilities (although only by a couple of %).

Should that give a similar return to "UK T Bills" - that is the category that the Timeline software puts them under?

Should I be picking a fund that's "Money Market" or "Money Market - Short term".

Also how should I choose as the returns are presumably driven mainly be the BOE interest rate.  On Interactive Investor the following options are available.  Can I just pick the one with lowest charges or is there more to it?

Doctor_Who

I have Royal London Short Term Money Mkt Y Acc in my SIPP for funds I plan to withdraw in 6-9 months. I've also seen CSH2 suggested.

Sarahspangles

Doctor_Who said:

I have Royal London Short Term Money Mkt Y Acc in my SIPP for funds I plan to withdraw in 6-9 months. I've also seen CSH2 suggested.

I have that one too, it was in the favourite funds list on the platform I use, and I looked in Trustnet and it performed well for its class. But the gains appear to be marginal for funds of this nature.

m_c_s

SONIA rate is now 4.93% so accounting for fund and platform fees at least a 4.5% return should be achievable on money market funds.

Doctor_Who

m_c_s said:

SONIA rate is now 4.93% so accounting for fund and platform fees at least a 4.5% return should be achievable on money market funds.

The fund fee is 0.1% and the platform fee is minuscule as a % (II are fixed fee), so I'm looking at a return of ~4.8%, maybe a bit more if BOE rates rise again.

Sarahspangles said:

Doctor_Who said:

I have Royal London Short Term Money Mkt Y Acc in my SIPP for funds I plan to withdraw in 6-9 months. I've also seen CSH2 suggested.

I have that one too, it was in the favourite funds list on the platform I use, and I looked in Trustnet and it performed well for its class. But the gains appear to be marginal for funds of this nature.

They are 'cash like' funds, not intended for longterm growth, but there should be low volatility. I had cash in my SIPP that earns very little with II. No point in investing it since I plan to withdraw before the next tax year starts, so getting ~4.8% in a STMMF made sense. Obviously the situation changes if BOE rates start to fall, but that's probably not happening anytime soon.
 

coastline

Another vote for Royal London. I've got this in my ISA . Fund was launched 1999 and holds £5.5bn . Continuity and and decent fund size. 

Royal London Short Term Money Market Y Acc Fund factsheet | Trustnet

Simple cautious portfolio of 70% MMF and 30% global tracker wouldn't bother me too much considering the MMF rates at the moment. If the global tracker crashed 50% which is a rare event the overall portfolio would be down 15%. That's peak to trough and there's usually some recovery in months ahead.

Chart Tool | Trustnet

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Sarahspangles

Doctor_Who said:

m_c_s said:

SONIA rate is now 4.93% so accounting for fund and platform fees at least a 4.5% return should be achievable on money market funds.

The fund fee is 0.1% and the platform fee is minuscule as a % (II are fixed fee), so I'm looking at a return of ~4.8%, maybe a bit more if BOE rates rise again.

Sarahspangles said:

Doctor_Who said:

I have Royal London Short Term Money Mkt Y Acc in my SIPP for funds I plan to withdraw in 6-9 months. I've also seen CSH2 suggested.

I have that one too, it was in the favourite funds list on the platform I use, and I looked in Trustnet and it performed well for its class. But the gains appear to be marginal for funds of this nature.

They are 'cash like' funds, not intended for longterm growth, but there should be low volatility. I had cash in my SIPP that earns very little with II. No point in investing it since I plan to withdraw before the next tax year starts, so getting ~4.8% in a STMMF made sense. Obviously the situation changes if BOE rates start to fall, but that's probably not happening anytime soon.
 

I was sloppy with the way I worded that bit. I expect slow and steady growth. There’s just not that much scope for the fund managers to add value by the way they manage the fund, so at best there are ‘marginal gains’ when they do a good job, but nothing to write home about.

RogerPensionGuy

Just a side view and question. 

Am I correct thst if people decides to plonk cash in a GIA and hold lots of sterling money markets units, any returns in the GIA is not included and counted inside the interest taxation rules?

ie, any gains in a GIA is purely subject to CGT.

These money market units at current SONIA rates look like a good place to hold cash that maybe needed at very short notice. 

Secret2ndAccount

RogerPensionGuy said:

Just a side view and question. 

Am I correct thst if people decides to plonk cash in a GIA and hold lots of sterling money markets units, any returns in the GIA is not included and counted inside the interest taxation rules?

ie, any gains in a GIA is purely subject to CGT.

These money market units at current SONIA rates look like a good place to hold cash that maybe needed at very short notice. 

If any fund you hold in a GIA contains more than 60% cash or bonds, then the returns are INTEREST and not dividends or cap gains. I would expect any Money Market fund to fall into this category. Even if you choose an Acc fund, and the profits roll into the fund, gradually increasing its value, you are still liable for tax on the interest annually (even though you didn't receive it). You don't pay any CGT when you sell the fund. Technically, you roll the interest payments into the purchase price you paid, so, when you sell, there is no capital gain. If, for some complex reason, you were left with a cap gain, you would still be potentially liable to CGT, but it seems highly unlikely that would ever occur.

Doctor_Who

RogerPensionGuy said:

Just a side view and question. 

Am I correct thst if people decides to plonk cash in a GIA and hold lots of sterling money markets units, any returns in the GIA is not included and counted inside the interest taxation rules?

ie, any gains in a GIA is purely subject to CGT.

These money market units at current SONIA rates look like a good place to hold cash that maybe needed at very short notice. 

The Royal London Short Term Money Market fund is invested in at least 80% cash or cash equivalents, income is therefore treated and taxed as interest and not dividends or capital gains (this initially confused me as HL state the income is interest, but give an ex-dividend date, see here). In a GIA the interest will be taxed just the same as any other savings interest. For this reason I hold the MMF in my SIPP (no tax liability on the interest) and low coupon/below par gilts in my GIA (minimal interest payments and capital gains are free of CGT). I found this article useful for helping to understand MMFs.

RogerPensionGuy

Maybe this link below is helpful information on this thread as some providers decided to really reduce interest paid on cash in various accounts. 

If I'm correct these guys are paying 5.35% unless I'm understanding it incorrectly which I often do.

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https://www.aegon.co.uk/support/questions/whats-the-interest-rate-payable-on-money-held-in-the-cash-facility-of-all-aegon-products