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.
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
From experience of withdrawing from Vanguard GIAs, money was in the bank by 5pm the next working day, though I’m not sure what time the cut off is.
I guess my comment a few days earlier was rather cryptic, see: https://monevator.com/weekend-reading-a-poll-about-your-portfolio-checking-habits/#comment-1599314
I stumbled upon this by accident, and IIRC it has been being paid since March; albeit at a lower rate to reflect the BoE base rate.
In any case, it is nice to see some good news.
Someone commenting on this Reddit post asked Vanguard to confirm and they said this: “Please note, however, that Vanguard UK Personal Investor is designed as an investment platform, rather than as a home for cash savings. As such our cash rates are kept under ongoing review. We do offer a range of investment funds that may be suitable for investors with short term investment horizons, or immediate funding needs.” See https://www.reddit.com/r/UKPersonalFinance/comments/zqz6yw/comment/j14g4t3/?utm_source=share&utm_medium=web2x&context=3.
Wow.. one of the biggest gems I’ve had from Monevator in recent times. Thanks for letting us know.
Recently cashed out most of my Vanguard S&S ISA to buy a London flat so I can confirm, they say to allow 5 days to withdraw your money but it’s always reached my current account in less than day.
Had no idea the interest rate was so good though! Will consider leaving more cash in there as well as buying back into the market.
(Incidentally, I’m the lucky person who perfectly timed the top of the housing market in 2022 to finally buy a place, as The Investor always used to worry about doing!)
Nice.
I have a small cash balance in my Vanguard SIPP. Without doing anything else, is this money benefitting from this interest?
When I check online at my investments, it shows the cash value and there is a ‘change’ field, which is just a dash (so no change). How would I know if my money is gaining interest, where can it be checked?
@ Andy
Go to the ‘Transactions’ section, then ‘Cash statement’ and you should be able to see an interest credit each month.
Is it a daft question to check whether cash held like this in a S&S ISA is still kept within the ISA wrapper?
I can confirm that, in my experience, cash withdrawals usually take one day. The cash interest is a very useful feature of the Vanguard account. Long may it last!
If I may make a suggestion, then a future feature on cash platforms like Raisin might be of interest to some of your readers (those who keep a decent cash reserve), although I appreciate this might not fall under the purview of “investing”. Aviva offer a similar service to Raisin, so I assume there are others as well out there.
I want to guard against opening an account and then finding out later they’ve stopped this great offer. So, does anybody know where they report the rate (or its relationship to the base rate), so one can check if they change things? I’ve had a look but cant see it. Thanks!
Belatedly Happy NewYear Monevator Team,
Yes, I have cash in both my Vanguard ISA and SIPP and was pleasantly surprised by the monthly cash interest that I worked out to be a little over 3%. The cash is really money to be deployed if we have a market correction and/or to pay down some of the mortgage when my fixed rate ends.
Hopefully, now the cat is out of the bag- Vanguard do not reduce the interest rate!
Interesting, thanks.
I have a Vanguard S&S ISA and a customer service person told me last year that they didn’t pay interest on cash. Yet, there’s usually some interest on my cash balance, I thought it was all old interest from when they used to pay it – but I couldn’t figure out why it still seemed to be ticking up more recently.
Not sure whether this applies to Vanguard, but I am aware it does/did apply with some other investment platforms/cash platforms, that before your money is transferred to say HSBC Bank or wherever, it can sometimes be in another transit account which you are not aware of (when in process of depositing/withdrawing etc.) which could be another account where it may be more at risk (as could be lumped together with monies with another bank or maybe even with your investments on the same platform and you may not be aware of this and could unwittingly go over the limit.)
Also I posted on your article “Investor Compensation Schemes – are you covered” about it recently – post #47 (but that’s an older article and some may not have seen it.) Basically Iweb told me over the phone (…….eventually after I persisted) that as they are part of Lloyds Banking Group (Lloyds, Halifax, Bank of Scotland) that their Investments (Iweb) and savings/current accounts with those banks (or any others in the Group) all share 85K BETWEEN them and not a separate category as I had always believed (as I had queried it on opening my Iweb account.) At first the guy said “as far as he knew” it was separate for each category but when I said he didn’t sound that certain, after a bit of a stand-off and silence, said he would check it. Left me holding and a while later said he had spoken with a superior and that the protection was shared across ALL their accounts including Iweb (includes Halifax/Lloyds/Bank of Scotland Sharedealing also) and all these same banks etc, in their banking group. So only 85K in total across all investments and savings held with ANY of these. I questioned him on this but he was adamant as a superior had told him this but I still don’t fully know if this is correct without any doubt and not sure how I can 100% find it out – even the FSCS don’t know – they told me to find out from the bank or investment platform. Truly ridiculous – they all pass the buck!)
I don’t feel I can definitively trust whatever they, or other investment platforms/FSCS or banks, tell me on this as I have been given completely contradictory information, for example by FSCS/Vanguard/AJ Bell/Hargreaves Lansdown/ii/Barclays Bank/Santander in the fairly recent past. Different staff tell me different things on different days/many don’t seem to know or will be bothered to find out and it’s you, the investor, who loses out at the end of the day, not them.
So personally, as I don’t want to risk losing my pensions/ISA’s etc. I have chosen to take a cautious approach and only hold up to (around) the FSCS limit with any of them – including whether in cash/investments in total across all their connected banks/savings accounts and investment accounts divisions (so also applies to many other Banks and their investment arms such as Barclays/Smart Investor, Santander/Santander Investment Hub etc. & others.)
Other investors may choose to take more risk (for maybe slightly reduced fees) but I’d rather save the bulk of my cash than a few quid a year when the next banking crash, or the like, happens. At least you can decide for yourself what action to take.
I figure it’s best to spread the risk. Accept it’s nigh on impossible to do if your investments are very large – but best to limit exposure and sleep soundly at night!
Just thought I’d point this out again for other investors who may not be aware.
@ballard
Thanks! 🙂
Me and my great mouth…..
Hopefully it puts a little bit of pressure on other providers out there who could (and should) be offering more.
@ Flashheart
I miss Rik Mayall!
I am not surprised by this. Vanguard have always been client-centred and do not have to make a profit for a management company over and above the costs of providing services to their clients. They presumably get the best rate they can for the very substantial client funds they hold in the bank and they pass it on net of their actual costs (as stated in their client terms) to those clients. If they are suddenly swamped with client cash as a result of reporting here and elsewhere then they may well lower the rate passed on, but mainly if managing the excess comes at the expense (because of say additional overhead costs) of other clients who invest in their funds, whose costs they will not want to increase by for example raising the platform fee. Or as TA says, the banks and building societies from which funds flowing into Vanguard will be withdrawn will respond by raising their easy access savings rates. These very largely remain below the BoE base rate, which is historically unusual and indicate that the banks still have more of our cash than they need.
All great but one question: do you loose forever from ISA allowance by the amount you have withdrawn or are you still free to pay it back in.
Peter: afaik the Vanguard ISA is not flexible so any withdrawals will not add back to your current years ISA allowance. Any previous years monies would also forfeit tax free status if withdrawn completely (as opposed to transferred to another ISA). So not really the same as a no-notice savings account in that presumably you’re not making multiple deposits/withdrawals.
I know Finumus(?) had a cunning plan involving flexible ISAs on these very pages, I wonder if he would opine on this…
This is from the Vanguard uk investor FAQ:
“Is the Vanguard ISA a flexible ISA?”
“Yes – which means you can take money out and then put it back in again later in the same tax year without it affecting your ISA allowance. All you need to do is make sure you stay within the annual ISA allowance.”
What about the vanguard money market funds? I have no experience of using them at all (Sterling Short-Term Money Market Fund), but if your objective is to park your cash somewhere, the latest distribution was 0.28%, or 3.412% annually.
Less 0.12% (annual) for the OCF, and the usual platform fees.
Main problem is not knowing the interest rate up-front compared to bank rates, but holdings are spread across different institutions so the FSCS worry doesn’t apply so much.
@ballard . In my ISA>Transactions>Cash statement screen I can see ‘Cash Account Interest’ itemised, but it shows for example:
01 January 2023 – Cash Account Interest – £1.80 – £1,111
If the above row means Ive earnt £1.80 on £1,111 cash, then that equates to 0.16% interest
@Mat109 – great shout. Parking cash is exactly what money market funds are for, and the rate looks better on the Vanguard Sterling Short-Term Money Market Fund exactly as you say. A good option versus anything in the best buy tables, especially if Vanguard downgrade their rate.
@ Doodle – yes, frontline staff are quite often poorly informed about things like that.
Best route for identifying who’s who:
Go to the Financial Services Register:
https://register.fca.org.uk/s/
Search by the name of the financial firm you want to check. Then search again using its FRN number (often referred to as its registration number).
That should show up sister brands that will share the £85K compensation limit between them.
@ DJFire – Vanguard don’t specifically disclose the rate. But everything you need to know is in the client terms document linked to above. Currently they set the interest payment as bank rate -0.25% plus all the other caveats mentioned. They reserve the right to change any element after a short notice period. If you’re only opening your account to take advantage of this rate – and will be upset if/when it’s downgraded – then I wouldn’t bother.
This is very interesting, I’ve been holding a decent wad of cash in an easy access account and drip feeding monthly into my S&S ISA to hit my £20k allowance, as £ cost averaging is my preferred approach. I also want to have firepower in the event of a good property or market buying opportunity.
The downside is I’m now concerned that I’m going to hit the Personal Savings Allowance (PSA) ceiling as a higher rate tax payer. Therefore, if I paid the cash into Vanguard as my holding pot instead, and gained ~3% interest, would the interest paid be tax free and therefore resolve my potential issue with PSA? As the ISA is flexible, and i’ve used this feature before, I could still get access should I need to withdraw for a property.
If this is all true, sounds like the best opportunity out there?
Yep, park the cash in the stocks and shares ISA and the interest will be tax free. Mind, the money market fund looks good too as pointed out by Mat109.
Excellent, this sounds like a great solution for me. I’ll get comfortable with all the documentation and if still happy fill up the remainder of this years allowances for the wife and I. Early April I’ll probably just stick in the 2023-24 allowances also. Then monthly just go in and make my purchase. This a great nugget of information, thanks!
p.s. I can’t see the money market fund on the vanguard investor platform so, unless it’s just me, I don’t think that’s an option, although it does sound good.
@Onedrew – I stand corrected! In which case yes, this would be ideal – too bad I’m no longer allowed to contribute new ISA monies (although, I can still contribute the full 9k to each of my kids’ JISAs) as no longer resident in the UK. I have the Iweb S&S Isa right now which is fully invested.
@FIREstarter – I’ve got a SIPP with Vanguard, no ISA. I had to click “show me funds that pay an income” switch at the top when investing which oddly then lists the Sterling fund under global fixed income funds.
Strange!
@Tufty
The interest is paid monthly so it looks like you missed out multiplying by twelve when estimating the rate? And technically you should be using the balance from the start of the month as the denominator.
Your interest credit still looks a bit low, but maybe you had some other transactions during the month.
@ballard . Oops. Maths was never my strong point! 😉
While I like Vanguard, one thing that does cheese me off is the time it takes for dividends to land. For example, the lolly from the VEVE etf, with a payment date of 28 December, landed in our iWeb accounts on the 29th while the same etf divi did not turn up in Vanguard ISA until 12 January.
How does the cash rate compare to Vanguard’s Sterling Money Market Fund?
SONIA is the benchmark which is some kind of short term lending rate presumably higher than their cash rate.
There are a couple of Sterling money market ETFs which have BoE base rate as benchmark:
CSH2 / LU1230136894 (Lyxor) – does a bit better than benchmark ??
XSTR / LU0321464652 (Xtrackers)
These are good for avoiding fund holding charges in some brokers (like HL).
And then there is FEDG / LU1233598447 (Lyxor) for USD tracking Fed funds rate….
Great info. I’ve had a S&S ISA with Vanguard for years and never knew.
Even within the FSCS limit I’d much rather park my cash with Vanguard or HSBC than some building society or challenger bank. We don’t know their exposure to risky loans, and if the proverbial hits the fan then best case it’s a drawn-out nuisance, worst case the system gets overwhelmed and tough luck.
@ Nick B – a simple annual interest rate based on the Vanguard Money Market fund’s last distribution = 3.36% vs 3.1% for cash. Presumably a smidge more risk in the fund’s holdings.
@ Algernond – Nice one!
That Vanguard Money Market sounds very interesting. In the past and today I have tried getting information about the returns for this fund from the Vanguard website, but I didn’t find the figures that have been mentioned. The figures I am seeing are much much lower, but then I am probably misreading them.
Could you please provide the link to the correct date, so that I can fully review it myself.
Thanks
mr_jetlag
Are your children still resident in the UK? My understanding was that (new) contributions could not be made to an ISA by non-residents. Is this not the case for JISAs?
@John, a specific interest rate won’t be mentioned because it’s variable and not guaranteed, and in practice will vary slightly depending on exactly where they park the money, but generally all the GBP money market funds will track SONIA, which is the Bank of England overnight rate. The SONIA rate is currently 3.43%. Most fund KIIDs will report the historical performance versus SONIA. Other money market funds to look at are the Royal London Short Term Money Market, L&G Cash, Blackrock Cash, and the Lyxor Smart Overnight Return GBP ETF (CSH2).
@Hague – yes, per HMRC guidance, “Further subscriptions can be made to the JISA even when a child becomes non-resident in the UK.”
https://www.gov.uk/guidance/junior-individual-savings-accounts-for-managers-jisas-managing-jisas
Will this get messy on the annual tax return to hmrc? For example interest at 3.5% less 0.25% will be paid into the account (the interest gross receipt on the tax form). Will it be this amount that is taxed or can you deduct all vanguard fees to get the interest received for the hmrc form?
@ John – https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-investor-gbp-income-shares/portfolio-data
Thanks Chris and TA. I have going to have a little punt on this Money Market fund and see how I get on. I take it it is practically no risk anyway.
With very low interest rates I have been happy to keep my buying-the-dip money and tax-protect cash in pure cash. But this time it’s different and even a little riskless protection from inflation makes sense right now.
Unless I am missing something, CSH2 looks like the best non-Vanguard option for holding cash and making a little interest. It appears to have the lowest cost and accumulates, so no additional charges to top-up from interest/dividends. It’s based on SONIA, which seems to be the optimum benchmark. It’s not a huge fund but Lyxor seem pretty safe, it has UK reporting and inside an ISA there’s no messy paperwork. And a clincher for me is that iWeb will have nothing to do with anything too complex and are happy to make CSH2 (or, as investing.com calls it, LYCSH2) available. What’s not to like?
@Mr Jetlag.
Thanks. Interesting to know.
@Onedrew
CSH2 looks interesting – it’s a synthetic ETF though which enters into a swap with a single counterparty against a basket of securities.
There are various tax advantages – it doesn’t distribute as you say, and it likely tracks the index more closely than a physical ETF/Fund (so gains can be logged against capital gains rather than income/dividends/interest).
But inside an ISA, without those advantages, I’d probably stick with a replicating ETF since the synthetic aspect will add a smidge more risk.
Interactive Brokers pays SONIA – 50bps being 2.93% currently (3.43% – 0.50%). However, the first £8,000 earns nothing. Protection is through US SIPC up to $250k for cash. The ISA is not flexible.
You can also convert to Hungarian Forint and earn 14.4% (but not in an ISA).
They say they will keep 0.2% of the interest rate, not 0.2% of the interest. I have always read that as basically 0.2% off the rate you get, so using your calculation on a 3.5% base rate: 3.5%-0.25%-0.15%-0.2% = 2.9%. A 0.2% deduction of the actual interest would seem a pretty meaningless amount to bother with. I guess we need people to calculate to see what is actually paid.
OOI, just noticed that iWEB are paying a decent interest rate (2.45% gross) on cash – but only in their SIPP, see:
https://www.iweb-sharedealing.co.uk/charges.html
Does anyone have any comparison data on the Vanguard Short-Term Money Market Fund vs Cash, both held in their ISA accounts? I tried to work out what the risk premium was for the money market fund, but got bogged down in decimal places. I’ve resorted to splitting cash equally between the two…
I have done exactly the same, to see which one wins. I can’t understand all this cloak and dagger on the part of Vanguard.
The money market funds pay a rate similar to the SONIA rate but you have to check the historical returns to see the full effect of fees, which vary according to provider, and other differences (e.g. not immediately passing on rate increases). You can do this by looking at the historical returns sections of the KIID of the fund – these returns account for the deduced management fees. You can also use the FT funds compare site. The only thing to watch out for when comparing funds is that some might use a different benchmark, so make sure you compare the returns of each fund to the same benchmark. For reference, most recent 12 month returns are:
1.78% Lyxor Smart Overnight Return ETF (CSH2)
1.65% Royal London Short Term money market
1.56% L&G Cash
1.49% Xtrackers GBP ETF (B2PDKP2)
1.45% BlackRock Cash
1.3% Vanguard Sterling short term money market
Note these returns do not include any platform fee your broker may charge. The Lyxor fund has an added advantage if you’re using a broker that caps annual platform fees for ETFs (e.g. HL, Fidelity, AJ Bell). As it’s exchange traded, there’s a spread for buying/selling but it’s tiny (0.03%). Historically it is the top performing fund in the list, returning an average of SONIA+0.08% for the past five years. The Royal London fund is also good historically, returning an average of SONIA-0.02% for the past five years.
Economically you’re better off with a money market account, you do lose the FSCS protection that you would have with cash (though money market funds are classified at the lowest risk levels).
I’d guess the reason Vanguard don’t want to publicise their market beating “instant access” rate that they make more money if people buy their equity funds, where they benefit from both the increased management fee and stock lending. It would be bad for them if their customers sold stocks and held cash during a downturn.
Two more funds, trailing 12 month returns:
1.69% Abrdn Sterling Money Market Fund (GB00B1C42332)
1.58% Fidelity Cash (GB00BD1RHT82)
The Abrdn fund has averaged SONIA+0.02% for the last five years, and Fidelity fund SONIA-0.08%. There’s not much between these two and the Royal London fund.
Thanks for the breakdown Chris. The FT fund compare was a good shout. Some food for thought there.
Much appreciated.
Gareth
@Student Grant
On my last Vanguard statement (Nov ’22) the following is written in Costs and Charges – Section 1.
“We also keep the first 0.20% of the interest we receive on cash held in your account, to cover our costs. This has the effect of increasing the total cost of your account.”
Note “rate” is missing from the statement. However, they didn’t break down the cost or % against the monthly interest received or as an annual total and the amounts were too small to validate.
Thanks for this article and the comments. I’ve been looking for somewhere to park SIPP and ISA money for a while. A dedicated article on this at some point would be very beneficial.
Based on the great information above, I decided to have a safe punt on the Vanguard Short-Term Money Market Fund.
I checked my balance today, and I am down £35! Oh well, back to the drawing board.
@John — If you want 100% cash-like behaviour, own cash. In that respect cash is king. 🙂
Amen to that, I took the simple option and just banged the cash into the ISA.
Thanks The Investor and The Firestarter. I might just ride it out anyway. Hopefully I will get a little boost tomorrow due to the Bank of England Base Rate going up 0.5%.
I know I will, for certain 😉
Even better, I had some headroom in my ISA, so the interest on the cash seems to be accumulating already and I can invest it all, including the interest, in a fund (VG LS 100%) if and when I choose to do so 🙂
From what I’m seeing from this link, it looks like the rate will be changed to 1.95% come February 20th. Seems too many people started holding cash in their accounts.
What link?
Here’s the link: https://www.vanguardinvestor.co.uk/need-help/answer/will-i-receive-interest-on-cash-held-in-my-account
Sorry Eoin, I see it now:
“Will I receive interest on cash held in my account?
You’ll receive interest at a variable rate. This variable rate is based on the interest rate we receive from our bank.
We do not charge a service fee for holding your cash – but we do keep up to 0.20% of any interest we receive on your cash. This is to cover our banking costs.
Any cash in your account will earn interest daily and will normally be paid into your account on the first working day of the month.
Changes to the interest we pay you
From 20 February we will be changing the way we pay interest. Rather than paying you a variable rate, we’ll pay you a fixed rate of 1.95%.
We’ll keep any extra interest we receive on your cash above the 1.95% we pay you.
We’ll review this regularly to make sure the amount of interest you receive is fair and offers good value.”
Oh no, the Monevator article must have sparked a deluge of people wanting to deposit cash. I though we were going to get away with it. Maybe Monevator has more reader than I thought. Even Martin Lewis hadn’t seem to have cottoned on to it yet.
Oh, Fiddlesticks!
I know, Mr Firestarter. Why don’t you try this instead, before they shut that down too:
We’ve included Moneybox’s stocks & shares ISA as, if used in a similar way to a regular cash ISA, it pays 3% AER interest, has no fees, and offers unlimited withdrawals – although you should be aware of a couple of things before you open it:
There are no fees, unless you choose to invest. To get the 3% interest you must pay money into the ISA account and keep it there as ‘available cash’ – this means your money is not invested (for example, in funds or shares).
If you decide to invest, the account will no longer be free – Moneybox charges £1/month (from month four), as well as a platform fee of 0.45%/month. These charges don’t apply if you only hold your money in the account without investing.
Your cash is protected, but in a slightly different way to a normal cash ISA. Unlike standard cash ISAs, investment platforms use a number of different financial institutions to hold your cash as a way of diversifying. Moneybox separates uninvested client money (i.e. your savings) from its operating cash, and stores it with one (or more) of these ten banks, which all have the normal up to £85,000 FSCS protection:
Aldermore Bank PLC, Arbuthnot Latham & Co. Limited, Brown Shipley & Co Limited, Clydesdale Bank PLC, First Abu Dhabi Bank P.J.S.C., Hampshire Trust Bank PLC, HSBC Bank PLC, Investec Bank PLC, Santander Financial Services PLC, Silicon Valley Bank UK.
If Moneybox were to go bust, you’d be contacted by the insolvency practitioner appointed to wind up the business to arrange for the return of your cash from the bank it’s held in. Or if the bank(s) holding your cash went bust, the FSCS would step in and aim to return your cash to you within seven days (though in some cases it could take up to three months).
Ah, that’s pity they’ve capped the rate at 1.95%, was just about to move my SIPP to them over from AJB (who at least are now paying 2.1%)….dont really have much appetite for funds these days and quite close to the lifetime limit anyway and its more of an IHT vehicle anyway so look likes the money market ETFs mentioned earlier look a good way for me
Rate cut to 1.95%.
But all is not lost as Vanguard Sterling Short-Term Money Market Fund – Income should presumably be yielding close to 4% going forward (net of course of 0.15% platform fees)?
Is there any value to investing in Vanguard’s money market fund as an alternative now that they’ve dropped the cash rate?
Interested to know if anyone has an ETF solution that improves on CSH2. I have been using IDTG, which has done that first-time-in-4o-years thing.
The Bigbaus, probably not. Soon they will probably announce they are cutting the rate on that one too.
The vanguard webpage stating the change to 1.95% has now been removed. I wonder why.
Exciting stuff…. surely they are making money on this by taking their platform fee (0.15%) and 0.2% of the interest, and most folk will likely dunk it into a fund at some point, so you would think it make sense to drive as much cash into their business as possible? no?
They are either reducing the rate further or just trying to be all secretive again. Don’t they sponsor this site anyway?
Copied from Reddit:
I received this reply,
Hi ******,
Thanks for your message.
Earlier today an error led to a web page from our test environment, which does not contain correct data, being made available to the public.
Vanguard will always provide a minimum of 30 days’ notice in the event of any changes to our Terms. We are sorry for any confusion that this has caused
I hope you have a pleasant weekend ahead.
Kind regards,
Ryan
Personal Investor Services
I asked specifically if the rate would be changing to 1.95% from 20th February.
I think we can take from their reply that it will be changing and the page stating the changes should not yet have been published as proper notice was not given.
Hmm, terms and conditions not updated, all other references on the site still say: ‘variable rate for cash’. As of this moment, Vanguard investors are in for a 0.5% savings boost courtesy of the BOE.
@ John – no Vanguard don’t sponsor this site or pay us at all. If they did, we’d mention it.
@ Bigbaus – yes, you’ll get a decent rate on the money market fund relative to easy access accounts right now. Earning the extra entails a little more short-term risk though as John found out. You can see what it contains here:
https://www.vanguard.co.uk/professional/product/fund/money-market/9974/sterling-short-term-money-market-fund-investor-gbp-income-shares
@ Eoin – cheers for the update! Much obliged. I’d guess you’re right. Vanguard don’t want to be famous for their cash interest rate.
Looking at the Vanguard short term market money fund – isn’t the volatility that @John experienced due to the monthly distribution and it going ex div ?…
Do the money market ETFs trigger CGT or IT?
@Mikw – That’s exactly my understanding too. If you look at the historical daily price data in the link posted by The Accumulator in comment 76, this becomes very obvious to see. The person who seems to have a small loss probably held the fund over the distribution record date (last date of the month) and so will be paid “that month’s interest” even if they only held the fund for 1 or 2 days before the record date. So it should hopefully all even out once the distributions are paid – looks like the payment date is the following month end.
This is true of my situation. I invested on the 27th January. I made the loss at the start of February. This loss is gradually eroding every passing day.
@john + you’ll get the divi at the end of the month… be interesting to see what it ends up returning after a month or so at 4% base rate
Thanks all. I will let you know how it works out.
What a great article and subsequent discussion. I have learnt a lot.
Looks like the party is over – Vanguard terms and conditions update just arrived for all of my accounts. 2.2% is the MAX (fixed) rate applied now from mid-march.
Unfortunately, it looks like Vanguard is now choosing to screw its loyal customers !!!!!!!!
I hold some cash in a Personal Pension (around 70k at times), and they used to pay an interest of 0.25% below the Bank of England Base Rate (now 4% so Vanguard paid 3.75%). However, as of Mark 2023, Vanguard is going to pay 2.2% WHAT A LIBERTY
Well, that was short lived…..
T&Cs are being changed to a fixed rate of 2.2% mid march
Per email from Vanguard uk
As you suspected in the last paragraph of your article, Vanguard is changing the policy now (at least in the UK). Received an email from Vanguard which also states what the revised interest rates will be for the time being:
“The interest rate at the date of the change (see below) will be 2.20%. We will keep any extra interest we receive on your cash above this rate to cover our banking costs.”
I guess your article’s popularity didn’t help this time, LOL
Well done, you killed it
John above, you held the money market fund over the end of January, so you will have gone “ex distribution”. This means the £35 ‘loss’ you see will most likely come straight back to you in the form of a distribution payment at the end of February. Fear not, it is very hard to lose money in a money market fund!
I thought they were a mutual so who exactly keeps the difference?
Their Money market fund looks better as an alternative
Apologies for being a bit thick.
I’m trying to figure out the interest rate on the Sterling Short-Term Money Market Fund.
The monthly Income Distribution on 31 Jan 2023 was £0.0025 per unit.
So, if I have 1000 units ( each at £1) the monthy interest is:-
£1000 x £0.0025 = £2.50
So, for a year:-
£2.50 x 12 = £30 which is 3% of £1000
However, Vanguard states that the yield is 1.56%.
https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-investor-gbp-income-shares/distributions
For simplicity I have not included charges.
What am I missing?
Regards,
Old Git
I’ve been looking at the income distribution figures again – a year of so ago they were much lower and sometimes zero – has this lowered the yield if it is an annual yield?
The HL yield is prob the trailing yield over the last 12 months (maybe net of charges) ?
Yep, methinks that’s it. I put the numbers into a spreadsheet and got a similar yield. As interest rates are higher now I’ll shift some cash into it in after the current cash interest drops to 2.2% in March 2023, Thanks for your input.
To quote email from Vanguard:-
“We cannot confirm the exact date yet. However, it will be between 13th to 27th March 2023. We will let you know as soon as the change has taken place.”
@ Old Git – yes, that’ll be a trailing yield.
@ All – Bugger. It was too good to last.
It was 3.1% when bank rate was 3.5% and now 2.2% when bank rate is 4%.
I wonder what the justification for the extra 1.4% of our interest taken away from us is.
I trusted them to be investor first but they seem like another idiot who would trade their trust for short-term profit. Imo everyone should transfer out of them to show them we won’t be abused like this and they’ll regret their act. I’m disgusted to see the legacy of Jack Bogle being smeared with their petty greed.
I hope this article is kept alive as a record.
Thanks Barry. My “loss” is down to £15.25 now. They seem to be adding around £1.40 a day (0.01% of the balance). It is quite nice to see an increase each day, even if it is such a small amount. It makes me feel less bad about the sometimes 4 figure daily decreases I see on the other funds.
It will be nice to get the £35 back as a one off payment at the end of the month as well.
I will let you know.
I have contacted Vanguard asking about the yield on their Sterling Short-Term Money Market Fund:-
“We apologise for the confusion caused as we have identified a data issue on the yield published for this fund on our website.
I can confirm that the correct current historical dividend yield for this fund is 3.5%.
As our team are aware of this data issue, you can be assured that we looking to rectify this and update the correct portfolio data for this fund on our website.”
IMHO 3.5% ain’t too bad.
@Old Git
Thanks for investigating. What would the return be after all Vanguard fees are deducted do you think?
@ Ali
Just got messaged by Vanguard after asking if the 3.5% yield is after all deductions:-
“I can confirm that this the correct yield after deductions yes.”
BINGO!
@ Old Git
Thanks for the update. Unless there’s a catch that I’m missing, that sounds a pretty good, relatively low risk place to keep cash then…
Thanks for confirming.
So that is after the account fee of 0.15% and ongoing fee of 0.12%, is that correct?
So if you already have £250,000 invested with them, with your account fees capped at £375 a year, you are essentially getting 3.65%?
> So that is after the account fee of 0.15% and ongoing fee of 0.12%, is that correct?
No, the 0.15% platform fee is not included in a published fund yield, it is a separate additional charge. It should be itemised in the “Costs and charges disclosure” PDF document that is generated for download when you buy the fund.
Thanks for confirming. So what they said is not true, it is not “after ALL deductions” then. So it is 3.35% after ALL deductions. Still better than a poke in the eye.
Here is a link to all Vanguard Costs and Charges:-
https://intl.assets.vgdynamic.info/intl/ukpi/documents/legal/vanguard-full-fund-costs-and-charges.pdf
The Money Market fund is at the bottom of the list and states:-
Ongoing Costs = 0.12%
Transaction Costs = 0.13%
Account Fees = 0.15%
Total = 0.4%
The small print underneath the list give details of these costs (sections1, 2 and 5).
So, Old Git, are they saying you’ll get 3.5% after the 0.15% account fees have been deducted then?
John, as you can guess, I am a pedant.
I will ask them and report back here – they are prompt so expect info soon.
Thanks Old Git, that is a good thing to be.
After all, 3.35% seems a bit mean with SONIA rates as they are right now, if they aren’t including the 0.15% fee.
Reply from Vanguard.
I asked:-
“Apologies for being pedantic but I am doing this for an online forum debating the recent reduction in the cash yield to 2.2%….. Does the Money Market yield of 3.5% include:- Ongoing Costs = 0.12% Transaction Costs = 0.13% Account Fees = 0.15% Total = 0.4% Sorry to be a pain but some of them are a bit upset over the reduction in cash yields and are looking at the money market fund to store cash instead.”
They replied:-
“I will break down your query a bit further in depth to clarify.
The fund’s historic yield is calculated by taking the dividend amounts over the previous year, divided by the Investment Product’s Net Asset Value Amount effective the date of the calculation. For example, the Net Asset Value Amount of an Investment Product effective 31st July 2022 is £100.00 and it declared four dividend amounts of £0.25 over the previous year, the Investment Product’s Historic Yield effective 31 July 2022 is 1.00%.
It is important to note that all of the fund management costs that you have listed are all incorporated into a fund’s NAV and therefore this is a net figure after all relevant fund costs including the transaction costs, ongoing fund charges, and any one-off costs and tax at fund level.
Please note that the Vanguard account fee is not factored into the fund NAV and it is not factored into the dividends either as we charge this separately for the provision and management of your account and our platform.
The previous future indicative dividend yield for this fund was 3.5% as of 31 January 2023 and this has recently updated to 4% for February 2023.
It is worth noting that with the yield being an indicative future yield, you can expect this to be impacted by confirmed movements in interest rates announced by the Bank of England.
Therefore, in line with the distribution frequency of this fund, the yield can also be subject to change on a monthly basis according to any frequent movements in interest rates.
I hope this further clarifies and is of help.”
Thanks Old Git. So basically it doesn’t include the 0.15% fee, but it has been updated to 4% net after all other fees anyway. So, including the deduction of 0.15% fee, you are looking at a very low risk rate of return of 3.85%.
I don’t know if your the latest post of this site, but it seems that the author seems to advise against using a Money Market Account because you might not be able to access your money in a crises. Apparently cash ISA are way better. To that I say does anyone remember Icesave and Northern Rock in about 2008?
Thanks Old Git. So basically it doesn’t include the 0.15% fee, but it has been updated to 4% net after all other fees anyway. So, including the deduction of 0.15% fee, you are looking at a very low risk rate of return of 3.85%.
I don’t know if your the latest post of this site, but it seems that the author seems to advise against using a Money Market Fund because you might not be able to access your money in a crises. Apparently cash ISA are way better. To that I say does anyone remember Icesave and Northern Rock in about 2008?
John, yeah I’ve read that good piece by The Accumulator.
At the end of the day, I’ve decided more or less to split my cash 50/50 in Vanguard Cash and Vanguard Moneymarket Cash to hedge bets in case of a “dash for cash” scenario.
Cheers,
OG
A wise choice. I make that a return after all fees of 2.95% on what may be a virtually risk free investment. You could get 2.9-3% at a push from a internet challenger bank you’ve never heard of but it is faff, and there are all these rules about contributing to more than one ISA in a year, aren’t there.
Interesting that the Vanguard Money Market fund seems to match the Bank of England base rate at the moment too.
So I just got my dividend payments on my Vanguard Money Market. The money they took off me at the start of February has now been credited in full as a dividend, plus I am in credit by £2.79. The dividend was a put into my cash balance, so I have manually transferred it to the Money Market.
Every day, they seem to add to the balance, which seems to average out as 0.01% of the balance per day.
Note that Vanguard have “fixed” this so you now get a lower but still decent interest rate of 2.2% (currently) :
https://www.vanguardinvestor.co.uk/need-help/answer/will-i-receive-interest-on-cash-held-in-my-account
If anyone is interested in the recent performance of one of the money market funds mentioned above – I have held the Luxor Smart Overnight return in my SIPP for the last 30 days to see how it performed. Over that period has returned 2.99% on annualised basis. Bof E interest rate over that period was 4%. It does oscillate intra-day, so using todays price may not be indicative of its longer term performance. Its held in an AJB sipp which is currently paying 2.6% on cash over £10k, so will leave it to you to judge if the additional 0.4% is worth the seemingly small, but additional risk
@Mikw The 1-month performance of CSH2 today is 0.33%. That would be 4% (1.0033^12) annualised. Historically, CSH2 has outperformed the compounded SONIA every year, returned an average of SONIA+0.08% since 2017.
Hmm, thats interesting, let me double check my numbers
If I’m reading it right, The Vanguard Sterling Short-Term Money Market fund is only 0.27% or 3.24% a year. That sounds a bit low.
Please let me know if I have got that wrong.
@John
Vanguard Sterling Short-Term Money Market fund
Distribution rate at Feb
0.27%/28*365days
~3.5%
Thanks Yuda, that makes much more sense. I knew I was missing something.
Apologies for another dumb question…
As the Vanguard Cash rate is reducing soon to 2.2% I was thinking about moving some cash into the Vanguard Money Market Fund. In view of recent market developments concerning SVB and potential contagion spreading and a possible “dash for cash” as people panic and take money out of MM Funds would it be prudent to do nothing for the time being and see how it all plays out? Any thoughts appreciated.
Interesting analysis (no pun intended).
Readers might like to know that Vanguard has told me that between 13-27th March (they are unclear exactly when) they will be moving to a fixed rate of interest of 2.2%, which they say is more “fair” and offers “good value”, compared to paying the BoE base rate (4%) minus their 0.2% deduction.
So my SIPP interest rate will be slashed from the current 3.75% to 2.2% because that is more fair and better value than before!
Silly question, if it’s now fixed at 2.2% instead of variable, what happens if the base rate goes down to 1%, do we expect Vanguard will then change their T&C’s again?
On a day when my Inbox fills up with emails from my building societies to tell me the base rate has gone up, and they’re thinking about how they’ll respond* here’s the email from Vanguard to remind me that today’s the day they put their rate down.
*Apart from the Coventry BS, which manages to announce its planned rises on the day – they must have a set of alternative new-rate pdfs ready to go.
Hi guys,
I have perhaps a silly question about this whole scenario.
I was previously just going to dump my full annual ISA allowance into cash and drop feed into a fund over the course of a year.
I’ve got about £70k sitting in a savings account getting 3.2% but I’m concerned about hitting the PSA quite quickly as a 42% (Scotland) tax payer.
I’m therefore wondering would it be better to just do as planned with the £20k and dump it into cash at 2.2% with VG then DCA, or should I keep it in the Savings account at 3.2% and drop feed. Probably, I should do a bit of both will be the answer here.
Is there anyone that can please show me the math whether the £20k at 2.2% tax free would be better or worse than 3.2% taxed? Sorry, I’m sure this is simple but I can’t think how best to do the comparison.
It appears the conditions have changed since this article was published.
From https://www.vanguardinvestor.co.uk/need-help/answer/will-i-receive-interest-on-cash-held-in-my-account (and based on my own experience):
> you’ll receive interest at a rate of 2.60%. This is a managed rate, which means we will regularly review and update it when needed. This will help us to make sure that the interest you receive is fair and offers good value.
> We’ll keep any extra interest we receive on your cash above the 2.60% we pay you. This is to cover our costs for managing your cash.
Note the current BOE interest rate is 5.25%