Alternative to CASH ISA

20122013

I hope this is the right board - please feel free to move it.

I have 1 year cash in a current account and will also keep £20K back for 2025/26 cash ISA (open to other options).

 

All the rest of my spending / expenses are in my fixed cash ISAs (4.5%) which will be ending from April 2025. I am thinking of whether there are other ways that can do better than these CASH ISA rates :

Nationwide has a 2 year fixed at  4.15% and a one year fixed at 4.10% with no early withdraw, Coventry same rates and no partial withdraw and a penalty of losing 90 days (?) interest.

As this money can be put away for at least one year or more but I must time it right for access from Year 2.

As I am more familiar with saving accounts / ISA (tax free and guarantee interest), is there  something else I can do with my money so they can work better for me which can be locked away for 1- 2 years ? 

Exodi

20122013 said:

As I am more familiar with saving accounts / ISA (tax free and guarantee interest), is there  something else I can do with my money so they can work better for me which can be locked away for 1- 2 years ? 

Are you anticipating needing to spend the money in the next 1-2 years then, as the default suggestion would be investment. Obviously this depends on your personal circumstances and risk tolerance.

Any reason to have so much cash? If you're still working for example, it might be more economical to ramp your pension contributions (so reduce your income from work) and subsidise your living expenses from cash. Pension contributions will return more than any cash ISA.

From what it sounds like, you have multiple years of living expenses in cash which is more than most recommend.

masonic

Some context here: https://forums.moneysavingexpert.com/discussion/6596693/rebalancing

OP, you could consider a variable rate cash ISA or transfer to a S&S ISA with use of a money market fund if you don't like the look of the fixed rate accounts on offer. If you have no other income and plan to use this money in a couple of years, you could pull it out of the ISA into a conventional fix, which might give you a better rate of interest.

20122013

Exodi said:

20122013 said:

As I am more familiar with saving accounts / ISA (tax free and guarantee interest), is there  something else I can do with my money so they can work better for me which can be locked away for 1- 2 years ? 

Are you anticipating needing to spend the money in the next 1-2 years then, as the default suggestion would be investment. Obviously this depends on your personal circumstances and risk tolerance.

Any reason to have so much cash? If you're still working for example, it might be more economical to ramp your pension contributions (so reduce your income from work) and subsidise your living expenses from cash. Pension contributions will return more than any cash ISA.

From what it sounds like, you have multiple years of living expenses in cash which is more than most recommend.

I have a separate pot of investment (S&S ISA)  - as mentioned in Masonic's reply. I have kept the amount of cash as I am planning not to access my S&S ISA for the next 10 years.  I am not working, the only money coming in will be from my savings interest (and my savings). I have allocated £2880 for pension contribution and £900 for the voluntary NIC.   

20122013

masonic said:

Some context here: https://forums.moneysavingexpert.com/discussion/6596693/rebalancing

OP, you could consider a variable rate cash ISA or transfer to a S&S ISA with use of a money market fund if you don't like the look of the fixed rate accounts on offer. If you have no other income and plan to use this money in a couple of years, you could pull it out of the ISA into a conventional fix, which might give you a better rate of interest.

Great points, these words: 'variable' and flexible have not been thought of  as I think I have '10 years' stuck in my mind.

 

I did not know about 'S&S ISA with use of a money market fund' - is there anything I need to look for in an MMF? so I don't get caught out?

and is the MMF same type of 'invesment' as gilts or bonds? (as I was looking at Multi Asset fund which contains corporate bonds) and my ISA is a bond and I also have a Bond with a bank.  I am guessing the MMF will give a better interest? 

masonic

MMF hold gilts and other government bonds that are very close to maturity, so they are much less risky than a typical bond fund, it's highly unlikely you'd experience a loss even over periods as short as a week. They tend to track base rate quite closely and give a fairly reasonable and consistent return in line with savings rates, currently you'd get about 4.5% from a Sterling MMF without the need to keep switching between banks to get the best rate. There are fund options available from Vanguard and Royal London, or Amundi offer an ETF, CSH2. Investment platforms such as Trading212 are using MMF to generate interest on uninvested cash for their clients.

20122013

masonic said:

MMF hold gilts and other government bonds that are very close to maturity, so they are much less risky than a typical bond fund, it's highly unlikely you'd experience a loss even over periods as short as a week. They tend to track base rate quite closely and give a fairly reasonable and consistent return in line with savings rates, currently you'd get about 4.5% from a Sterling MMF without the need to keep switching between banks to get the best rate. There are fund options available from Vanguard and Royal London, or Amundi offer an ETF, CSH2. Investment platforms such as Trading212 are using MMF to generate interest on uninvested cash for their clients.

so  some of the benefit for moving my cash ISA into a MMF is that

less risk than a bond fund (probably less fees, too?)

The MMF rate is 4.5% so higher than current cash ISA on over.

Short term (one week investment still ok)

would I know how long will the MMF rate be ? in comparison to a 2 year fixed cash Isa?

20122013

How to stretch to Year 2070?  (inflation has not been factored in but I have included 5% as emergncy for my yearly spend)

Following on from my OP. I have been thinking about whether I will have enough till 2070.

I thought I had enough to invest and the gain made will last 45 years. I am now wondering whether this is correct, if not, will think of another plan promptly. 

<some text edited out)

masonic

20122013 said:

masonic said:

MMF hold gilts and other government bonds that are very close to maturity, so they are much less risky than a typical bond fund, it's highly unlikely you'd experience a loss even over periods as short as a week. They tend to track base rate quite closely and give a fairly reasonable and consistent return in line with savings rates, currently you'd get about 4.5% from a Sterling MMF without the need to keep switching between banks to get the best rate. There are fund options available from Vanguard and Royal London, or Amundi offer an ETF, CSH2. Investment platforms such as Trading212 are using MMF to generate interest on uninvested cash for their clients.

so  some of the benefit for moving my cash ISA into a MMF is that

less risk than a bond fund (probably less fees, too?)

The MMF rate is 4.5% so higher than current cash ISA on over.

Short term (one week investment still ok)

would I know how long will the MMF rate be ? in comparison to a 2 year fixed cash Isa?

You will not know what the future returns will be. They will depend on what happens to interest rates more broadly. It is equivalent to holding a variable rate savings account (probably most similar to holding a savings account tracking base rate). As and when other options become more attractive, you could switch into any that you prefer. At the moment there is no reward in terms of higher rate for locking money away in a 2 year fixed term savings account or a 2 year gilt. You won't know which is better over the next 2 years until the end of that period. If rates fall further and/or faster than predicted then it may swing it in favour of fixing now, but there isn't much pressure for further rate cuts at the moment. Quite the contrary.

20122013 said:

How to stretch to Year 2070?  (inflation has not been factored in but I have included 5% as emergncy for my yearly spend)

Following on from my OP. I have been thinking about whether I will have enough till 2070.

I thought I had enough to invest and the gain made will last 45 years. I am now wondering whether this is correct, if not, will think of another plan promptly. 

I have different pots and want to know whether the way my plan will stretch

There is one big number you need to consider when assessing whether you have enough. That is the percentage of your current assets you need to spend from your investments each year to meet your basic needs. If that is a very low number like 2%, then you have a very high chance of the money lasting as long as you need it providing you take enough risk (which is usually around 50% or more in equities). If it is around 3%, then that's still pretty reasonable. If it is 4% or higher, then you will be relying on not being unlucky to some extent. Though if you have a state pension to boost your income in the later years, it could turn the tides.

In general, it is worth being flexible with the order of spending. During good times for the stockmarket, it makes sense to draw down from your high risk pots, preserving the low risk ones for when there is a market downturn. You should definitely have some low risk assets as an insurance policy to prevent you having to sell high risk assets at a loss. At the moment you have more than someone typically would in low risk assets, but should aim to retain a few years worth to see you through any market turbulence later on.

Also, you need to consider inflation. Your spending power towards the end of your plan will likely be more than half what it is today. Investing is the main way to keep your assets rising above inflation. Cash will barely keep up with inflation and will lose value in real terms at times.

A plan that involves renting in your later years does not sound very attractive to me. Although perhaps you are considering some sort of bespoke retirement living schemes where you'd have some security of tenure and support.

20122013

masonic

20122013:

Ah, I had thought there will be another rate cut this year.  So maybe it will be better to find the highest rate with the most flexibility and park it there, wait and see or even invest into ISA in the next tax year 2026and keep the CASH ISA within the wrapper.

20122013 said:

How to stretch to Year 2070?  (inflation has not been factored in but I have included 5% as emergncy for my yearly spend)

Following on from my OP. I have been thinking about whether I will have enough till 2070.

I thought I had enough to invest and the gain made will last 45 years. I am now wondering whether this is correct, if not, will think of another plan promptly. 

I have different pots and want to know whether the way my plan will stretch

There is one big number you need to consider when assessing whether you have enough. That is the percentage of your current assets you need to spend from your investments each year to meet your basic needs. If that is a very low number like 2%, then you have a very high chance of the money lasting as long as you need it providing you take enough risk (which is usually around 50% or more in equities). If it is around 3%, then that's still pretty reasonable. If it is 4% or higher, then you will be relying on not being unlucky to some extent. Though if you have a state pension to boost your income in the later years, it could turn the tides.

In general, it is worth being flexible with the order of spending. During good times for the stockmarket, it makes sense to draw down from your high risk pots, preserving the low risk ones for when there is a market downturn. You should definitely have some low risk assets as an insurance policy to prevent you having to sell high risk assets at a loss. At the moment you have more than someone typically would in low risk assets, but should aim to retain a few years worth to see you through any market turbulence later on.

Also, you need to consider inflation. Your spending power towards the end of your plan will likely be more than half what it is today. Investing is the main way to keep your assets rising above inflation. Cash will barely keep up with inflation and will lose value in real terms at times.

A plan that involves renting in your later years does not sound very attractive to me. Although perhaps you are considering some sort of bespoke retirement living schemes where you'd have some security of tenure and support.

20122013:

'There is one big number you need to consider when assessing whether you have enough.  That is the percentage of your current assets you need to spend from your investments each year to meet your basic needs.'

Appreciate your explanation and I would like to understand it, as I don't seem to understand calculations enough to do what I need it to do, so the way I did was 

:

worked out my yearly spend (this will not decrease any further)  

worked out the interest I would earned (based on an average of 3%)

and then deduct it from each year and see how long the money will last, and I would have used up all the interest by 11/2039

My new plan was to take in 2 lodgers which should provide 1/3 my income but it will incur CGT  and the costs for having lodgers so may not be worth it but the income will be more certain than equity / funds. If I do not get a lodger I would sell the property (once sold in the next 24 mths  I can use the money to buy more funds and will move to the other property )

I had some really helpful replies for my other posts and know what is the final amount I need to aim for and now I have to work out whether my plan I had will help me get there, if  sell my home it is more likely to succee

For my equity investment - I think I will need to have more than one fund.

NB I am not sure what has happened to the format.

masonic

There probably will be another 0.25% rate cut later this year, but the fixed rates already reflect that in their rates.

It is better to work out your yearly spend and compare that to the total value of the assets being used to support it. Then you can use historical growth data to evaluate how likely the withdrawal rate you need is to be sustainable for the period you require. This can take into account inflation and other factors. There is a lot of discussion around what is a "safe" withdrawal rate based on a percentage of your original pot.