Considering gilts

kidwell25

For the last few years I’ve been keeping myself as a basic rate tax payer by making additional pension contributions. However, as my savings interest is going to be pretty high for the next 3 or 4 years that will involve salary sacrificing close to half of my salary on AVCs, which I’d rather avoid (as I hope to retire super-early in about 5 years time and therefore need to continue building savings in order to bridge the gap). Therefore, I’m starting to look at low-coupon gilts as an alternative to fixed rate savings accounts for my non-ISA savings.

I’m a novice in this area so would be grateful for confirmation of whether my understanding is correct on a few issues:

1.      Holding to maturity means I’m guaranteed a capital return of £1 per unit. So if I were to purchase, for example, £10,000 of T26 0.125% (30 Jan 2026) which is currently trading at 92.93p, in addition to the nominal 6-monthly coupons along the way, I’d get back £10,760 on 30/1/26. Correct?

 

2.      If I were to sell before maturity is there a theoretical possibility of getting more than £10,760 (i.e. could the value flip to being *over* par if we have a fall in interest rates, or can it never cross that par threshold?) Either way, given my stated objectives above, is now (at a likely peak of interest rates) a good time to be buying a low-coupon gilt?

3.      I appreciate none of the this takes account of charges. Which platform has the lowest charges assuming, say, I purchase on two occasions per year and each transaction is between £10,000 and £50,000?

Grateful for any advice!

26left

1. 100/92.93 *10000  = 10,760 back in principal - correct 

2. Unlikely to go over par. But the sell price might deviate above and below the straight line price from here to 100 on 30 Jan 26 based on changing interest rate expectations.  On the basis that rates are peaking / have peaked now, it’s a good time to buy - and yields relative to saving rates (net of tax) look competitive. 

3. I use HL. There is no charge to hold gilts. If you hold to maturity the only charge you pay is £11.95 per trade to buy. 

GeoffTF

Your assumptions are more or less right, but you need to account for accrued interest too.

I bought some T26 a few days ago with HL as an emergency fund. (I have a smaller emergency fund with the Skipton.) You can trade T26 online with HL. iWeb is cheaper, but you have to submit an "at best" order with them, and they use BACS rather than Faster Payments for withdrawals.

InvesterJones

GeoffTF said:

Your assumptions are more or less right, but you need to account for accrued interest too.

I bought some T26 a few days ago with HL as an emergency fund. (I have a smaller emergency fund with the Skipton.) You can trade T26 online with HL. iWeb is cheaper, but you have to submit an "at best" order with them, and they use BACS rather than Faster Payments for withdrawals.

Can you buy gilts online with iWeb or is it a ring them up job?

GeoffTF

InvesterJones said:

GeoffTF said:

Your assumptions are more or less right, but you need to account for accrued interest too.

I bought some T26 a few days ago with HL as an emergency fund. (I have a smaller emergency fund with the Skipton.) You can trade T26 online with HL. iWeb is cheaper, but you have to submit an "at best" order with them, and they use BACS rather than Faster Payments for withdrawals.

Can you buy gilts online with iWeb or is it a ring them up job?

You can no longer do telephone trades with iWeb. You have to place an order online, which is passed to a dealer who executes the trade. You do not know the price that you will get in advance.

OldScientist

GeoffTF said:

InvesterJones said:

GeoffTF said:

Your assumptions are more or less right, but you need to account for accrued interest too.

I bought some T26 a few days ago with HL as an emergency fund. (I have a smaller emergency fund with the Skipton.) You can trade T26 online with HL. iWeb is cheaper, but you have to submit an "at best" order with them, and they use BACS rather than Faster Payments for withdrawals.

Can you buy gilts online with iWeb or is it a ring them up job?

You can no longer do telephone trades with iWeb. You have to place an order online, which is passed to a dealer who executes the trade. You do not know the price that you will get in advance.

That's interesting - the last time I used them to buy individual gilts (over a year ago now), they would only accept telephone orders. I guess they have been inundated with customers buying gilts and have chosen the cheaper (for them) option.

If you've used them recently, have the prices been close to the bid price on the LSE (my experience with them by telephone was that the price was slightly better than that bid price - but that may have been a function of the 15 minute delay, etc.)? Edit: That said, unless there's unusual circumstances, the prices don't change that much in a few minutes!

friolento

Yesterday, I put a purchase order for some gilts in at HL. By 09:30 this morning, it was all done and dusted. Quite impressed with the speed.

GeoffTF

OldScientist said:

If you've used them recently, have the prices been close to the bid price on the LSE (my experience with them by telephone was that the price was slightly better than that bid price - but that may have been a function of the 15 minute delay, etc.)? Edit: That said, unless there's unusual circumstances, the prices don't change that much in a few minutes!

The bid/offer prices quoted on the LSE are nuts. Perhaps they are the prices for very small telephone trades. The recent prices actually traded are a better guide. You can see that clearly with conventional gilts on HL, which supports online trading. I expect that iWeb's back office places conventional gilt trades online, so the prices may be the same as HL. but you do not get to see what they are in advance. The LSE intra day selling price graph has spikes sometimes. iWeb's back office can only trade index linked gilts over the telephone. I have got reasonable prices for £50K+ index linked gilt trades with them. It costs £50 to trade index linked gilts over the phone with HL. I do not know whether they do a better job, e.g. by phoning more than one market maker, for the extra money though.

Clicker9180

I am interesting in buying gilts through IWeb. Does it make any difference how big the individual trades are in terms of what price you'll get?

aroominyork

Clicker9180 said:

I am interesting in buying gilts through IWeb. Does it make any difference how big the individual trades are in terms of what price you'll get?

No. I once wondered the same and put in large and small amount to get a price - no difference.