Better known as a global investment giant, Vanguard is currently paying a highly competitive interest rate on cash parked in its ISA, SIPP, and general trading account products. Vanguard doesn’t publicise it but you can currently earn a Vanguard cash interest rate of 3.0935% to 3.1% on money you leave uninvested in its platform. 

This ‘hidden’ Vanguard interest rate compares very favourably against leading easy-access savings accounts and cash ISAs topping the ‘best buy’ tables at the time of writing.  

Vanguard cash interest: how it’s calculated

Vanguard’s interest rate is calculated on your cash balance like this: 

The Bank Of England base rate (currently 3.5%)

minus 

0.25% Vanguard’s deduction from the base rate 

minus 

0.15% Vanguard’s account fee 

minus

Up to 0.2% Vanguard charge on interest received 

Note: the 0.2% is deducted from the interest you earn. It’s not a 0.2% fee applied to your total cash balance. That makes this charge much smaller than it appears at first glance, as we’ll see below.

Tot those numbers up and you’ll earn a minimum 3.0935% Vanguard cash interest on uninvested cash lying idle in a stocks and shares ISA, Junior ISA, SIPP, or general trading account. 

Vanguard interest rate: an example

Vanguard doesn’t publish its cash interest rate. It’s like a secret menu item at KFC.

Moreover, the clues to its existence are confusing, so let’s work through an example to see just how good the interest payments are.

Imagine you’ve stashed £10,000 in your Vanguard account. 

£10,000 x 3.25% Vanguard cash interest rate = £325 interest earned

£10,000 x 0.15% account fee = £15 deducted

£325 x 0.2% Vanguard admin charge on interest = £0.65 deducted

£325 – £15 – £0.65 = £309.35 net interest earned 

(£309.35 / £10,000) x 100 = 3.0935% Vanguard interest rate

Or: 3.5 – 0.25 – 0.15 – (3.25*0.002) = 3.0935% interest paid on cash. 

Right now, that’s a generous rate!

Are there any wrinkles?

Quite a few! Both positive and negative things to be aware of. 

Monevator reader WCTL Flashheart first tipped us off about Vanguard’s interest rates. WCTL Flashheart said the cash payments they received increased with every hike from the Bank Of England. 

In other words, Vanguard is quick to pass on the benefit of interest rate rises. Quite unlike some other financial institutions we could mention!

About that confusing interest charge

Vanguard’s cash interest rate is poorly advertised, to say the least. The fullest explanation is in the Vanguard Client Terms document. (Access the latest version from its terms and conditions page). 

This document says (emphasis is mine):

Interest charge

We do not charge a service fee for holding your cash. Instead we currently keep up to 0.20% of the interest rate we receive on cash held in your account, to cover our costs of administering it. This rate is determined by reference to the interest we receive and the cost to us of managing the cash within your Account.

In the event that we are not able to sufficiently recover our costs from the interest we receive we reserve the right to levy an additional service fee of up to 0.20% by written notice in accordance with clause 10.

If Vanguard decides not to levy the full 0.2% on interest received, then you’ll earn a slightly better rate: up to 3.1%. 

Reader WCTL Flashheart calculates they are earning 3.1% in their SIPP, for example. 

Meanwhile Vanguard customer service didn’t mention the 0.2% charge to me and say the interest rate is the same for all accounts. 

However, as you can see in the clause above, Vanguard may charge up to 0.4% on interest received. 

Thankfully that won’t do much damage. A charge of 0.4% on 3.25% reduces your Vanguard cash interest rate to 3.087%. 

What about this account fee and service fee business? 

Vanguard’s website says: “We do not charge a service fee for holding your cash.”

Many people might innocently assume that means Vanguard doesn’t charge its 0.15% account fee on cash holdings. 

But Vanguard customer service has confirmed that the 0.15% charge does count against cash. 

So while it’s lovely that Vanguard doesn’t charge a service fee, it does charge an account fee. Because those two things are, um, completely different, obvs. 

There is an account fee cap

Once the value of all your accounts (investments and cash) passes the £250,000 mark then your account fee tops out at £375.

So if you’re stuffing away cash at Vanguard beyond that threshold, you’ll earn a 0.15% bonus rate. 

Admittedly while simultaneously throwing away cash – because there are rival brokers who’ll charge you a much cheaper flat fee for holdings way below the £250,000 level.

(See the flat fee brokers section of our broker comparison table for a better deal.)

When is interest paid and are there any other catches? 

Interest is accrued daily, but you don’t earn a bean on cash awaiting withdrawal or cash that’s paid into a regular savings plan.

According to the client terms document: 

If you set up a Regular Savings Plan to make regular Payments or Contributions we will not pay interest on your Payment or Contribution before it is invested.

Is the cash ‘easy access’?

Cash parked in your Vanguard SIPP can’t leave until you hit the minimum pension age. That’s age 55 at best, so perhaps this route is for retirees only. 

Junior can’t withdraw from a Junior ISA until age 18. (Probably a good thing on balance…)

However you can withdraw anytime from a Vanguard stocks and shares ISA, or a general account.

Vanguard’s ISA is flexible so you can withdraw money and not lose that year’s ISA allowance if you pay back the cash inside the same tax year. Hit that last link for a refresher on the flexible ISA rules. 

Vanguard’s withdrawal terms are also pretty easy going:

There is no minimum withdrawal amount and no requirement to maintain a minimum account balance. 

Obviously though it’s not like moving cash in a flash on a banking app. It could take a good few days for your cash to actually land in your bank account. 

Please let us know in the comments if you have firsthand experience of how long it takes Vanguard to stump up after a withdrawal request. 

FSCS compensation protection

Famously, cash and investments are protected up to £85,000 by the FSCS compensation scheme. 

Vanguard deposits your cash with HSBC bank. So if Vanguard went down and your cash was stored with HSBC at the time then all is well – provided the bank remains standing. 

If HSBC defaulted then your Vanguard cash would be a risk. In that scenario, your ultimate backstop is the FSCS cash compensation limit of £85,000. But that claim would be set against your cash at HSBC, not Vanguard. 

Moreover, your £85,000 worth of protection is measured versus all the cash you’ve lodged at HSBC. 

So if you have a HSBC savings account worth £85,000, plus a Vanguard cash balance of £85,000, you’re still only covered by the FSCS for £85,000. Not £170,000. 

This rule applies across the board with the FSCS. The protection limit applies:

• Per authorised firm – including their sub brands
• Per person – so joint accounts are covered up to £170,000
• Per claim category – i.e. cash is one category and investments another. That means all your investment funds held with one institution are only covered up to £85,000

So to avoid breaching the FSCS ceiling you must only keep £85,000 total in cash at all HSBC related accounts, including Vanguard, First Direct, and any other brokers who deposit with HSBC. 

Obviously Vanguard could change its partner bank. But it says it’ll let account holders know in that event. 

Some brokers divide client money between multiple banks to diversify the risk of a default.

AJ Bell claims:

If we held 20%, or one fifth, of your cash with a bank that failed, up to £425,000 would be fully protected by the FSCS (i.e. 5 x £85,000).

Vanguard only mentions HSBC, though. 

Will Vanguard’s cash interest rate remain competitive?

Vanguard’s business is investing not banking. If it is flooded with cash from UK money mavens then I suspect we’ll find it dropping down the ‘savings account’ league table pretty quickly. 

But for now Vanguard’s cash interest rate is a welcome point of difference that’s much higher than rivals such as Interactive Investor, Fidelity and AJ Bell.

Enjoy it while it lasts. 

Take it steady,

The Accumulator

What caught my eye this week.

A fortnight ago I posted a couple of reader polls, asking you how often – and how – you checked up on your investment portfolio.

More than 2,600 of you voted! Thanks to everyone who did their click for England Monevator.

I promised to share the results. They might be especially interesting to those who check their portfolios less frequently.

(Because presumably you aren’t the sort to go back to the original article after a week to see how everyone else voted…)

How often is normal

The first big takeaway is that over half of Monevator readers (yes, who voted in this poll, statistic sticklers) check their portfolio at least once a week:

Indeed slightly more than 80% of us check our portfolios at least monthly!

This is a pretty incredible statistic. I’m hoping my co-blogger The Accumulator doesn’t read it, given how often he’s cautioned against fanatical portfolio monitoring.

Of course it’s reasonable to assume that regular Monevator readers are more engaged with their portfolios than most private investors. And also perhaps that the sort who will vote in a poll that’s of interest to investing nerds like us are also, well, investing nerds who are more likely to want to see how their portfolios are doing.

There’s no distinguishing between passive and naughty active investors here, either. Despite some friction at times, we do try to be a broad church.

Maybe most of Team Accumulator just smiled serenely on seeing the polls then glided down to the latest Guardian fancy house roundup in the weekly links?

Certainly my friends who invest completely passively (and where I’ve had something to do with it, which is how I know) typically have no idea what their portfolio is worth.

At least a couple have called me over the years to make sense of their platform’s online navigation. Up until then they’d mostly done everything by post!

Who does that now? To some extent the accessibility of our portfolios via the devices that surround us makes checking them regularly almost inevitable.

Check mate

If you had to phone up a person to ask for a snapshot – let alone wait for a reply in the mail – I doubt anyone would be checking anything very often.

But then again, I would never have invested so much and so young if it hadn’t been a hands-on experience. And I’m obviously an (over) engaged investor as a result who has achieved a measure of financial security pretty young as a result.

I’m sure I’ve invested more (and more often) because I check my portfolio at least daily. Indeed far more often at times, with it being so easily accessible via various sheets on my Google Drive net worth spreadsheet.

However I also do believe this has caused me more stress and hurt than even active investing had to. Particularly in a dire year like 2022 (dire at least for a naughty small cap / growth stock-leaning active investor like me.)

Tools of the trade(rs)

I am almost more surprised that so few of you use an automatically updated spreadsheet like I do. Our second poll suggests nearly 40% of you are trudging around the broker screens, which seems a faff to me:

One thing is clear – paper is indeed a dying medium for investors.

Meanwhile I’m impressed that c. 35 of you don’t track your portfolio at all. Is that because it’s size is so surplus to requirements or because you’re just getting started, I wonder?

It feels like one definition of being really rich: if you have to ask the price you’re not rich. Maybe it’s the same for sufficiently (eight-figure?) funded stashes.

I’ll let you know if I ever get there…

Portfolio monitoring pros and cons

It’s been a truism for as long as I’ve been blogging about personal finance that a largely hands-off approach to your portfolio will work best for most investors.

Choose a sound asset allocation, automate your saving and investing, and avoid checking things too often.

There was even that famous study that apparently showed that dead investors – who were unable to log into their dormant accounts to meddle – achieved the highest returns of all.

Interestingly, in reading around the subject I’ve found new research implying that being engaged leads to superior outcomes. Although of course it depends on what that engagement entails.

Trading penny stocks based on candlestick charts every morning is almost certainly not going to be a winning strategy, however engaged you are.

On the other hand, caring enough to log into your company’s pension portal to swap high-charging active funds for low-cost index trackers is a one-shot decision that will likely reap rewards for decades.

On balance, I still feel less is probably more. However bad I am at taking such advice myself.

That’s because staying strategically disengaged from your portfolio’s value most of the time has two big benefits.

Firstly you’ll be less tempted to fiddle with your plan or panic.

Secondly, every portfolio except Bernie Madoff’s spends most of its time below its latest high-water mark. Seeing you’re down (even if only on yesterday) makes you feel bad.

The science says the times you notice you’re up won’t balance it out, either. The pain of losses exceeds the joy of gains.

But you probably know that already. And I must admit that as a passionate investor who follows the markets like others football – not to mention a blog owner who hopes you’ll keep returning or better yet subscribe to read more of our articles – I’m glad so many of you are so fresh with your investments.

Just don’t tell the other guy!

Have a great weekend.

[continue reading…]

Like being too scared to date or too shy to visit a gym, the fear of investing is a hangup that costs you nothing in the short-term but can cripple your long-term future.

I’ve seen it many times over the decades. More so as my family and friends have come to think of me as the person they know who is into investing. They approach me with their hopes and fears.

Many people grow up with no role models who invest. It can all seem foreign and frightening.

My own working-class parents relied on a defined benefit pension – and their home – for their old age. They didn’t think about shares once.

My dad said I was gambling. Only after he died did my mum start a modest portfolio.

Other people get burned early by a self-inflicted loss. This used to happen because they unfortunately discovered the market via a friend or workmate who day trades. Today first contact probably happens more on social media.

Half a dozen lost shirts later, some look for a better way. For them, punting on blue sky stocks turns out to be an on-ramp to a global tracker and a simpler life.

But others eventually conclude, again, it’s all gambling. They might swear off investing for a decade. Our lives are too short for that much forsaken compounding not to hurt.

I saw this nervous sentiment after the Dotcom bubble burst. Even those who did keep investing snatched at cheap shares and wanted to sell before they were caught out. Faith in the future was in short supply.

That trepidation must also be widespread in the wreckage of the meme stock boom of 2021.

Doing better by knowing nothing

Let’s think about the future by remembering the past – and previous market corrections.

By late 2009 the global stock market had bounced far off its admittedly somewhat scary lows hit during the financial crisis.

One could certainly quibble about valuation then, or the pace of the economic recovery.

Many of us also fretted, wrongly, about what quantitative easing – as we misunderstood it – would do to inflation or proper market functioning. (A dozen years too early, perhaps?)

However I did believe it was pretty clear all the shoes had dropped, as our US cousins say. The global economy had gone to breaking point and back. It had buckled, but it had not been busted.

The way ahead from the dark depths – however bumpy – was going to be up.

And after two years of writing about a relentless bear market on Monevator – from 2007 to 2009 – I was personally looking forward to some good times!

Yet online people called me naive or reckless for my optimistic take. The pain of loss was still fresh.

Worse, in real-life I learned of friends who had invested nothing for years – too scared by all the bad news.

Luckily those who’d set up Legal and General ISAs stuffed with the in-house tracker funds I used to suggest in those faraway days had mostly kept up their modest but meaningful contributions.

And buying equities cheap for several years eventually boosted their returns, as you’d expect.

One ex-girlfriend was even sweet enough to phone me around 2015 to thank me for getting her started with what eventually became her London house deposit. (I tutted and said it was all her own hard work. While secretly realizing yet again she’d been a keeper!)

However those I knew who tended to talk about “doing something clever” with their money or even “playing the markets” had often not acted so well.

Fear of investing when shares are cheap

You might run away from a bear or scream at a spider. But fear of investing is typically manifested in doing nothing.

In late 2009 a good friend admitted to me that’d he still not started with the regular index-tracking ISA investment plan we’d by then been informally discussing for – oh – five or six years.

He told me this ruefully after seeing the FTSE 100 index break through the 5,000 level again, in the summer rally of that year.

In an article on Monevator in July 2009 I wrote:

Normally you have to hold your nose when you buy because of equity valuations.

For the past six months, you’ve instead had to close your eyes and ears to bad news headlines.

But unfortunately my friend had neither held his nose nor closed his eyes.

He’d kept on doing nothing.

“I knew I should have invested when the FTSE was below 4,000,” my friend bewailed. “But everyone told me it was going to fall further.”

Ahem. “Everyone?” I thought to myself. (I was more diplomatic in those days).

All summer, he continued, he’d been waiting for a correction.

Then he’d swoop!

However in my view, anyone who fancied themselves as a tactical investor who didn’t buy something in March 2009 is never going to be a swooper.

Most people aren’t constitutionally built for making repeated active decisions. Even fewer – nearly all of us – aren’t any good at the timing, anyway.

There’s no shame in it. We just need a different plan. Probably one that automates the decisions we made in the cold light of a Sunday morning.

But this friend of mine struggles. He seems to have an unshakeable image of himself as a wheeling and dealing active investor, but he rarely acts.

Perhaps it’s because he’s an (excellent) entrepreneur. Action is his forte.

Whatever it is I can’t get through to him. He’s still much the same over a decade later. Begrudgingly and inevitably he’s finally made some investments over the years. But there’s still no coherent plan.

Lost in Neverland

Such people are stranded in an investing Neverland. For years they avoid committing. Instead they wait for a perfect tomorrow that never comes.

Or, almost worse, they eventually do buy into a market – but only when their fear of investing fades and it feels super-safe to do so. When everyone is loudly buying again, and the market has been rising for years.

They think they’re taking less of a risk buying in the good times. The opposite is true.

I had another acquaintance who was unlucky enough to make vast profits punting on tech IPOs during the Dotcom boom. From memory he made at least ten times his salary in a couple of years. Possibly more.

He lost virtually the whole lot in the subsequent crash. (Fortunately for his subsequent lifestyle, his wife cashed out her share of ‘the pot’ at the turn of a century, months before the fall, to invest in a lifestyle business in the Med. They went on happily to run it).

This fellow’s ups and downs cemented for him an unfortunate idea about investing. He talked about company insiders, daring bets, nose-tapping tips, and doing vastly better than the market – as well as taking vast amounts of risk.

And that was actually a workable strategy in the crazy late 1990s.

Right up until it wasn’t.

Similar would be the meme stock and crypto traders of a couple of years ago who had laughed at those of us who didn’t double our money in an afternoon.

What speculators do in these rare periods of euphoria works brilliantly, for a while. But they don’t realize they’re essentially exotic creatures in a very unique ecosystem with a short lifespan.

Sooner or later a meteor hits the rarefied climes, and everything changes.

Exaggerated threats

But isn’t fear of investing rational, then? If a generation can go metaphorically extinct like that?

I don’t think so.

What it misses – especially for someone like my entrepreneurial friend, for whom investing is a must-do not a passion – is that questions of when or what to buy today or sell tomorrow are really irrelevant to what investing should be doing in their lives.

They are not fund managers, nor even DIY investor hobbyists.

Their fear of investing is an emotion that arises mostly from their faulty investing worldview.

In reality, investing is just a means to an end for most. We work hard, save, and have spare capital to put to work productively for the future. We need our money to at least stay ahead of inflation over longer periods. We’d ideally like it to do better.

That’s it.

Going back to my friend, his surplus capital should be invested for the long-term. Money he might need in the short-term should stay in cash or short-duration bonds.

History has shown this is a winning strategy.

Follow it and what is there to fear?

Here’s what is likeliest to happen to a balanced portfolio after a bad year like 2022:

Source: Vanguard

My friend should focus on the yellow dotted line – while accepting that now and then some people will find themselves in the unlucky 1%. And he should invest accordingly.

Then he should get back to doing what he’s great at when it comes to making money, and doing what he actually likes doing with the rest of his time.

Everything else is noise for someone like him.

With friends like these…

I am not making my friend up. (I appreciate he sounds like a composite created for a blog post.)

But I don’t believe he’s that unusual.

My friend is no idiot. He’s a clever and capable businessman. He just hasn’t been able to get past the fairy tales spun by the finance industry to extract from us all the cash they can.

My friend is also unfortunate enough to have old university friends in the City – let’s call them the Lost Boys – who were mired in gloom in Spring 2009. They were convinced the stock market would plunge further.

They expressed this view loudly to my friend, who listened. Talking to them flattered his fear of investing – making it look instead like a sound strategic decision.

His Lost Boys were getting wealthy in the financial services industry. So they must have known what they were talking about, right?

Not so fast.

The sophisticated face of fear

While City folk can obviously give extremely valuable information in specific areas, in my experience they used to be terrible sources of general investing insight for ordinary investors because:

• Your goals and their goals are probably very different.
• They flock together, and most tend to think much the same thing at any point in time.
• Many base their mood on what they’ve been paid recently.
• Career risk (good and bad) influences their investing outlook.
• Some don’t seem to understand reversion to mean. Seriously.
• They are often somewhat-to-very rich, which gives them different profiles to most of us. (One very wealthy banker acquaintance of mine used to keep the bulk of his millions in bonds, and intended to until he stopped working. He didn’t need risk, he said. It was rational in its way.)
• Nearly all of them got rich on other people’s money. They didn’t compound a nest egg out of their savings. They took earned 1% of hundreds of thousands of other people’s nest eggs

The younger City types I meet these days are admittedly a different breed. They have grown up in an era where it’s at last widely understood that passive investing usually delivers the best results.

But back in 2009, surrounded by his oldest pals and with a head full of ideas such as doubling his money in banks on the brink, it was difficult to persuade my friend that he should invest regularly and automatically into an index tracker, and to turn volatility over 30 or more years to his benefit.

Passive investing sounded to him more like a tax. Not like high-rollin’ share tradin’!

So he sat on the sidelines and did neither. Watching the market soar.

Fear of heights

Indeed when you’re not invested – or even when you are – rising markets can also encourage a different kind of fear of investing.

Now you’re not scared because markets are falling.

You’re worried because they’ve already gone up.

The Accumulator addressed this one in 2016, after the market had risen for what in hindsight seems just a scant few years.

Yet some readers were already nervous that another bear market must be imminent.

A crash is always a possibility. But the bigger danger is that trying to anticipate such corrections again turns you into a share trading punter. And not a very happy one at that.

As The Accumulator noted:

It’s easy to drift away from a simple and iron-rigid strategy into a messy, complex, ad hoc one where you’re constantly pulling all kinds of shapes in order to outguess the market.

Most of us should stick to a simple, automated, passive investing strategy and only get involved with some light rebalancing once a year, or when the markets have swung wildly.

But this stuff is only very easy in retrospect.

Looking back now it seems almost comic that anyone would have worried about the market getting carried away in 2016.1 Think of all we’ve seen since!

But that’s not to mock those who were. We considered it worth writing about, too, after all.

Number crunching side note

A good antidote to such nervousness after a modest 20% rally is to read old investing histories. You will hear them talk about index levels that seem to be missing several decimal places.

For example, here’s the Federal Reserve recalling the crash of the early 1930s:

The slide continued through the summer of 1932, when the Dow closed at 41.22, its lowest value of the twentieth century, 89% below its peak.

The Dow did not return to its pre-crash heights until November 1954.

True – a smidgeon over 44 was the low in the 1930s depression.

It’s also true that the Dow is breached 36,000 in 2021!

Yes, I understand you haven’t got 90 years to wait for a bounce back. You won’t need so long (absent a disaster like a communist revolution) but even that is not the point.

I’m simply arguing for perspective.

You wouldn’t panic that you hadn’t yet reached Glasgow just 30 minutes after pulling out of your drive in Bristol.

Set your investing horizons appropriately long-term, and you have more time to be less afraid.

Peter Panic

As I said, it’s untrue that nobody suggested my friend put money into the market back in spring 2009.

For my sins, I did. (I stopped giving advice like this years ago, unless my friends really push me).

I also recorded my views on Monevator, writing almost to the day of the low in March 2009:

The global stock markets have suffered their worse declines for several generations.

Ultimately, if you’re not trickling money into the markets at these levels then I think you might as well forget stock market investing altogether.

While I am proud of that piece, I admit I was lucky with the timing. And quite rightly the article was fully of caveats.

Still, in 2022 I could send my friend a link to that old article, note its date, and pretend I’m brilliant at calling markets like his City chums might have. (They’d have launched a fund on the back of it!)

Actually, I’d probably go up a notch in his eyes!

But doing so would be to do my friend a huge disservice. It would teach entirely the wrong lesson.

I’d simply become another Lost Boy in his Neverland gang. Whereas what he really needs to do is to finally take a mature and disciplined approach to long-term investing.

So I keep it to myself, and nowadays just nod as he bemoans his years of ill-fortune in the markets.

Epilogue: fear of investing in the property market

I’m sounding a bit too smug in this article for someone who saw pretty big market-lagging losses in 2022 and felt rotten about it.

So I’ll conclude with a reminder about how I’ve been shell-shocked myself.

Not with equities, but property.

Specifically, how the fear of investing in an expensive-looking London home cost me a fortune.

Long-time readers may remember it took me 20-odd years to buy my own place to live in. This despite my huge interest in the property market throughout.

Years before Monevator – in my 20s and early 30s – I was arguably even obsessed. The tail-end of this period crept onto this blog. I used to compute my own affordability ratios and the like, and swap anecdotes on the madness of the market on forums where we’d try to call down a property crash like some ritual cargo cult.

We didn’t think we were doing that, of course. We thought we were the sane ones.

And perhaps in another reality – where the financial system wasn’t bailed out in 2008 by near-free money and so there was subsequently a second Great Depression – we were. In that universe we could tell everyone in the line for the soup kitchen how we had seen it all coming.

But I’m glad I was wrong and we got the reality we did.

If nothing else, being optimistic is a nicer way to live!

I say that as someone who once calculated that not buying a two-bed flat in an up-and-coming area of London like my father urged me to – at the very bottom of the market in the mid-1990s – had cost me roughly three-quarters of a million quid.

You literally live and learn. But it’s better – and cheaper – if you can do so from someone else’s mistakes.

Invest sensibly and appropriately. Diversify. Never go all-in on anything.

And with that lose your fear of investing.

1. The bond market maybe, given last year’s historic crash back to 2010 levels. [↩]