Beating business savings interest rates with Money Market Funds

cpx2

@waveneygnome - could I ask whether you joined as a company? And how easy this was?

koru

waveneygnome said:

Following too......

From what I've read, IE has only 2 MMF: 

XSTR - distributing ETF, OCF 0.1%, dividends paid twice a year

CSH2 - accumulating ETF, OCF 0.1%, no dividends (as its accumulating along the way as income is received into the fund)

XSTR is the smaller of the 2 funds £73m vs CSH2 £3450m......which may/maynot be a factor on liquidity in case there was a run on the fund.

CSH2 may be harder (?) to unpick the 'income' received in the year to declare on your companies accounts/pay relevant Corp Tax due.

(Found the opening of the account with IE very smooth, but have yet to press any more bottons)

Hi, sorry, only just saw these last two posts. I decided I was happy with CSH2, so IE would serve my purpose. It tends to be the best performing of all these kind of funds.

I agree that it might be a bit complicated if you have accrued gains at year end, but in my case I always need to use all of my company's cash at year end, to pay salaries and dividends, so I withdraw everything from IE, which crystallises the accrued income/gain. I recognise as interest income the difference between what I invested and what I get out.

The other thing to be aware of with CSH2 is that it is synthetic, so it replicates the BOE rate using derivatives. Looking at its long term performance, I'm happy that this is safe enough for me. I seem to remember that the only time it dropped in value was in the depths of the GFC and within a few days it had recovered. I'm not going to need the money out urgently, so I can ride any drop in value due to cataclysmic market conditions. 

koru

Since I'm revisiting this thread, I might as well give a wider update:

I've been using IE for 18 months now, and it has been very smooth. You need to have at least £20k invested with them at the time the LEI renews (on the anniversary of setting up the account), if you want to get the free renewal.

I've also ended up using the Wise equivalent, as I found myself in a position where I needed to receive some income in dollars and euros, so I bit the bullet on opening a Wise business account. There's a £45 one off fee to get bank accounts in those currencies, but it is very convenient to be able to give local bank account details to customers in the US and Eurozone. I decided to leave the balances in those currencies so that I avoid FX conversion fees when I need to make payments in those currencies, so I decided I might as well use Wise Interest, which is Black Rock money market funds in the relevant currencies.

Wise is also very smooth - they have tried to make it as much like a deposit account as possible, though they make clear that it isn't one. It hadn't occurred to me until I came back to this thread, but they haven't said anything about a LEI, which is strange. I can only guess that they cover the cost of the LEI out of the fee that they deduct from the interest on a daily basis. (Unless they looked up my LEI for IE and used it?) Wise rates are a bit lower than the best MM funds, but close enough that it isn't worth shifting my modest currency balances elsewhere.

koru

Further updates:

IE now charge £45 annually for all LEIs after the first year.

I asked Wise about LEIs and they said their "method of investing funds exempts our customers from needing an LEI". I assume this is because they have added some sort of Wise 'wrapper' around the underlying fund. However, Wise charges a 0.56% fee, which means the yield is lower than with CSH2. So, which will give you the best return after costs depends whether 0.5% of your investment is higher than £45. If your average investment is more that £10k, over the year, IE and CSH2 is going to be better.

koru

waveneygnome said:

Following too......

From what I've read, IE has only 2 MMF: 

XSTR - distributing ETF, OCF 0.1%, dividends paid twice a year

CSH2 - accumulating ETF, OCF 0.1%, no dividends (as its accumulating along the way as income is received into the fund)

XSTR is the smaller of the 2 funds £73m vs CSH2 £3450m......which may/maynot be a factor on liquidity in case there was a run on the fund.

CSH2 may be harder (?) to unpick the 'income' received in the year to declare on your companies accounts/pay relevant Corp Tax due.

(Found the opening of the account with IE very smooth, but have yet to press any more bottons)

CSH2 consistently beats XSTR in terms of return delivered. If you plot their returns on a chart, CSH2 steadily grows at a higher rate.