Choosing a Money Market fund

Pat38493

RogerPensionGuy said:

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

I don't think so - they are applying the rates on a tiered basis and they said further down the article that the current BOE base rate results in an interest rate of 2.75%.  It seems like they are saying you get a portion of the BOE base rate according to each tier of the base rate itself.

I also got a message from II yesterday that their cash interest rate is based on tranches of your balance and has changed upwards to:

Doctor_Who

I read it the same as Pat38493 and, obviously, your SIPP needs to be on their platform with their costs (no idea what they are).

I got the II email about increases to interest paid on cash in the SIPP - still easily beaten by a STMMF. 

RogerPensionGuy

Tks Pat & Doctor. 

Such a nice headline for dopey me, looking at a simple quick easy fluid 5.35%

I think its a bit misleading however, they could put a headline up of playing double the Bank of England rate and then further down the page chop it all up like currently and just in reality pay only half the Bank of England rate.

saucer

I have investments in Vanguard Target Retirement funds. The TR 2030 does very little, but has recovered most of its 2022 losses.   I’m wondering whether some of that might be better off, in the present high interest climate, in their MMF, the Vanguard Sterling Short Term Money Fund. It has a fee of 0.12 and seems to aim to track SONIA. Any views on this?

RogerPensionGuy

Doctor_Who said:

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.

Further to this post here I found a link below which again clearly states all interest is taxed as  interest. 

So even using a GIA and getting any interest on cash money market funds or just on cash in account a person may have to start filling out various tax forms. 

I thought the HMRC is just advised of all interest paid to people via their NI number from all institutions and their personal Tax Code is changed to reflect tax required to be paid?

I'm guessing with interest rates at current levels plus or minus over the next few years many people will be getting potentially taxable interest liabilities, any information on this view most welcome please. 

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https://mypensionexpert.com/investments/general-investment-account#:~:text=Your GIA offers you access,is dependent on your circumstances.

L9XSS

saucer said:

I have investments in Vanguard Target Retirement funds. The TR 2030 does very little, but has recovered most of its 2022 losses.   I’m wondering whether some of that might be better off, in the present high interest climate, in their MMF, the Vanguard Sterling Short Term Money Fund. It has a fee of 0.12 and seems to aim to track SONIA. Any views on this?

I have approximately 70% of my SIPP in this. It’s an income tool so pays a “dividend” at the end of the month. I’m currently waiting on this to hit the cash portion of my Vanguard SIPP, i then invest it into various ETFs (global and Japan at present) each month. Last dividend was around 4.3% if memory serves me right. I also have a SIPP with HL and utilise there abrdn money market fund acc. This is an accumulation MMF so the income is shown “daily” and reinvested into the original lump sum. Rightly or wrongly I have about 160k in these funds at present. I’m happy with the returns and my wider portfolio pension mix.

RogerPensionGuy

saucer said:

I have investments in Vanguard Target Retirement funds. The TR 2030 does very little, but has recovered most of its 2022 losses.   I’m wondering whether some of that might be better off, in the present high interest climate, in their MMF, the Vanguard Sterling Short Term Money Fund. It has a fee of 0.12 and seems to aim to track SONIA. Any views on this?

Maybe a slight drift but I'll mention something I'm doing/done, I'm 61 for information. 

I have a SIPP and moved it all out of lifestyle units as I probably didn't/don't want an annuity but it's possible maybe I'll buy one as rates have got better.

Possible current plan is to chunk out 25% tax-free at a point in time the next few months or years and I have personal reason why I'm chunking it all out in one shot and then maybe just draw £12,570 PA for a while or more if I like. 

Anyways back on track the SIPP units are their bog standard pension unit worldwide index sorta thing and they recovered very very well  this year so I chunked 25% of this fund in to their money market units.

My rationale is if we see a nuclear winter in the markets these next few years I'll be more comfortable hoovering out the cash if I want or possibly convert all cash back to a big market drop as I've other vehicles I can use for cash if I desire. 

It's sorta funny looking at my SIPP most days now, the standard units value goes up and down, red or green maybe 1% or so and the money markets cash just shows green up every day, obviously the % is tiny but, guessing 5% PA currently I think.

Pat38493

Thanks everyone for the replies so far.

I have just diverted the future employer contributions in my Aegon pension into the Royal London Money market fund in order to build up an amount to take out tax free cash in a couple of years.

Once my transfer arrives in my II pension I will put about 25% of it into money market and rebalance it every so often.  The rest I am probably going to put in an 80/20 fund - not fully decided yet.

By the way does anyone know why Aegon insists on their portal that I have to allocate minimum 0.25% of all future contributions to cash - if my charges are less than 0.25% my cash amount will keep slowly increasing over time?

Secret2ndAccount

RogerPensionGuy:

It's sorta funny looking at my SIPP most days now, the standard units value goes up and down, red or green maybe 1% or so and the money markets cash just shows green up every day, obviously the % is tiny but, guessing 5% PA currently I think.

You need shades of green my friend:



Only thing is this makes the money market fund show up white because the daily gains are so tiny.

NedS

The only thing I'll add (for any newbies) is as a UK investor to ensure you are buying a Sterling money market fund, not any other currency, otherwise you are buying the currency movements which may be far greater than any underlying interest rate, and your very low risk MMF is now effectively at a far higher risk level.

In the OP's situation, they may also like to consider gilts - TN25, for example, matures 31/01/2025 and currently yields around 5.2% if held to maturity. Obviously that's more than the current SONIA rate, and reflects the markets expectations that interest rates will rise further. Whether locking in a guaranteed rate of 5.2 % now for the next 18 months will out-perform a SONIA tracker over the next 18 months, who knows? You could hedge your bets buying TN25 now with any available (large) cash amounts, and then drip feed future monthly contributions into the MMF hoping for future rate rises.