Money markets

DavidT67

Since ST MFFs pay interest, I believe you can make use of both the starter rate and personal savings allowances for any interest earned within a GIA, as a basic rate taxpayer.

Pat38493

Ditto as above - I use them in SIPP or S&S ISA to get a better rate than just leaving the money in the SIPP as cash, with almost no additional risk.  The interest achieved should be pretty close to top rated savings accounts (apart from short term bonus deals or whatever).

I currently have 3 years of future withdrawals in RL MM fund in one of my SIPP.

These could become even more popular given that the current talk about reducing the annual ISA limit for cash ISA, seems to assume that nobody has ever heard of short term money market funds in the S&S ISA.

Interesting Example Trading 212 - they kind of do the work for you in the S&S ISA or GIA - they pay 4.05% on cash, but you have to click a box that says they can hold the money in short term money markets.  Their cash ISA actually pays a lower rate.  I have quite a bit of cash sitting in a T212 Invest account right now.

dont_use_vistaprint

MetaPhysical said:

They're good to park cash into in an ISA or SIPP for diversification rather than just leaving it in real cash as a balance in your account.  Still carries a small risk though.   Also they're no good for a GIA though if you have to pay 40/45% tax.  That's where low coupon gilts come into their own.

Or treasury bills that pay zero coupon are even better 

LHW99

dont_use_vistaprint said:

MetaPhysical said:

They're good to park cash into in an ISA or SIPP for diversification rather than just leaving it in real cash as a balance in your account.  Still carries a small risk though.   Also they're no good for a GIA though if you have to pay 40/45% tax.  That's where low coupon gilts come into their own.

Or treasury bills that pay zero coupon are even better 

How would you buy those in the UK? (genuine question)

QrizB

LHW99 said:

dont_use_vistaprint said:

MetaPhysical said:

They're good to park cash into in an ISA or SIPP for diversification rather than just leaving it in real cash as a balance in your account.  Still carries a small risk though.   Also they're no good for a GIA though if you have to pay 40/45% tax.  That's where low coupon gilts come into their own.

Or treasury bills that pay zero coupon are even better 

How would you buy those in the UK? (genuine question)

US Treasury bills would not get the CGT benefits that gilts receive.

I think the closest UK equivalent would be "Treasury strip" but they aren't treated quite like gilts either? See:

https://forums.moneysavingexpert.com/discussion/6423301/treasury-strip

Storcko14

I hold some in my SIPP alongside a very small DB to cover essential living costs until SP age.  A much smaller sum is held in my ISA as dry powder.  I'm keeping an eye on annuity rates (they don't really work for me right now) and also ILG yields as an alternative should the STMM yield fall significantly below inflation but for now at least, it's easier than a gilt ladder and also easy to change if required.  I also ignore the stated yield figures and use SONIA (3.95%) as my comparator which currently stacks up well vs the platform's 2.25% cash rate.

Pat38493

Worth noting that about a year ago there were stories in the media about money market funds being more risky than the perception, since if everyone wanted to take their money out at the same time, the fund might not be able to cope and people would have to wait.

However - these stories seemed to be mainly focussed on more complicated longer term MMF rather than the short term ones like Royal London.

Cus

From my limited understanding, the mmf will be investing by giving cash from the fund to many corporations who want to borrow that cash, with very short term maturities (weeks), which the mmf fund continuously rolls as the weeks go by. Those corporations will pay interest on that cash borrowed, hence the mmf fund is able to provide that interest back to you 

In theory, if a number of those corporations very quickly all had major cash flow issues at the same time, and with contagion, then they not only wouldn't pay that interest to the mmf fund, but also wouldn't give the money back to the mmf fund at maturity.  Then the fund may not be able to pay you your money if lots of people then decided to take their money from the fund at the same time.  Very unlikely, but there is an element of investment risk, so it is different to a true cash account.

artyboy

QrizB said:

LHW99 said:

dont_use_vistaprint said:

MetaPhysical said:

They're good to park cash into in an ISA or SIPP for diversification rather than just leaving it in real cash as a balance in your account.  Still carries a small risk though.   Also they're no good for a GIA though if you have to pay 40/45% tax.  That's where low coupon gilts come into their own.

Or treasury bills that pay zero coupon are even better 

How would you buy those in the UK? (genuine question)

US Treasury bills would not get the CGT benefits that gilts receive.

I think the closest UK equivalent would be "Treasury strip" but they aren't treated quite like gilts either? See:

https://forums.moneysavingexpert.com/discussion/6423301/treasury-strip

Yeah, I hit on strips at one point thinking that they were the perfect tax free return, obviously too good to be true. 

So anything else with a half decent yield that is based on current price rather than coupon will have to do...

RogerPensionGuy

Pat38493 said:

Worth noting that about a year ago there were stories in the media about money market funds being more risky than the perception, since if everyone wanted to take their money out at the same time, the fund might not be able to cope and people would have to wait.

However - these stories seemed to be mainly focussed on more complicated longer term MMF rather than the short term ones like Royal London.

I thought I read if a surge in withdrawals of money market funds did occur above a certain % of the funds, withdrawals maybe delayed a bit and possibly cause hassle.

I guess it would be different if too much use of longer term lending was used.