Gilts

MoneyMan01

Are gilts a viable option if drip feeding money in monthly, or due to the nature of how gilts work, are they only cost efficient when making lump sum "purchases"?

gravel_2

How big a drip? Most (all?) gilt purchases will incur a dealing fee. £5 per trade at IWeb, £11.95 at HL and so on.

Such a fee on a modest drip feed would materially degrade your return.

wmb194

MoneyMan01 said:

Are gilts a viable option if drip feeding money in monthly, or due to the nature of how gilts work, are they only cost efficient when making lump sum "purchases"?

What are you trying to achieve?

It depends on how much we're talking about but for small sums not really because I'm not aware of the commission free brokers offering them but you could do something similar cheaply with UK Treasury bills via Freetrade. Your money is locked up for c.28 days as there's no secondary market and capital gains are taxed as interest but otherwise they're backed by the Treasury in the same way as conventional gilts. Freetrade will automatically roll them over for you so you could grow your holding over time.

https://freetrade.io/treasury

MoneyMan01

gravel_2 said:

How big a drip? Most (all?) gilt purchases will incur a dealing fee. £5 per trade at IWeb, £11.95 at HL and so on.

Such a fee on a modest drip feed would materially degrade your return.

Let’s say £1,000 a month as an example. 

MoneyMan01

wmb194 said:

MoneyMan01 said:

Are gilts a viable option if drip feeding money in monthly, or due to the nature of how gilts work, are they only cost efficient when making lump sum "purchases"?

What are you trying to achieve?

It depends on how much we're talking about but for small sums not really because I'm not aware of the commission free brokers offering them but you could do something similar cheaply with UK Treasury bills via Freetrade. Your money is locked up for c.28 days as there's no secondary market and capital gains are taxed as interest but otherwise they're backed by the Treasury in the same way as conventional gilts. Freetrade will automatically roll them over for you so you could grow your holding over time.

https://freetrade.io/treasury

Basically, maxed out Cash ISA, S&S ISA, PB’s. Aim here is to not have to pay unnecessary tax.

Next option appears to be Gilts. Lump sum, the investment is clear to work out.

But if wanting to now save an amount each month, let’s use £1,000 a month as an example, I was curious as to whether doing that would be beneficial, or if they are only beneficial when making lump sum investments?

OldScientist

As others have said, how much you lose depends on the purchase fee.

For example, investing £1000 with iweb (£5 per transaction) in a gilt with 4% yield ('m going to ignore the additional complexity introduced by coupon reinvestment).

Without fee, invest £1000 - after 1 year have £1040 (a return of 4%).

With fee, invest £1000, after fee £995 is used to purchase gilts - after one year have £1034.80. In other words, a return of 3.48% on the initial investment.

Coupons would need reinvesting every 6 months (£20 in this example) which could be aligned with your additional drip feeding.

MoneyMan01

Thank you.

It seems as though gilts are more beneficial when making lump sum purchases. I will try and see what is best for drip feeding money monthly, without having to fork out tax on the interest earned.

zagfles

[Deleted User] said:

You could buy the gilts using the premium bond money and then top up the premium bonds over the time.  It'll save dealing fees and reduce the need to think about things.  Whether it is a good idea or not will depend on how lucky you think you will be.

Selling and rebuying premium bonds could be less efficient if you don't think about timing, because you lose part months "interest", or rather entry into the prize draws. If selling PBs best to do at the start of the month and buying them is best at the end of the month.