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The excellent Vanguard cash interest rate hiding in plain sight

The excellent Vanguard cash interest rate hiding in plain sight post image

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

{ 55 comments… add one }
  • 1 Genghis January 24, 2023, 10:06 am

    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.

  • 2 Al Cam January 24, 2023, 10:42 am

    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.

  • 3 Wodger January 24, 2023, 11:05 am

    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.

  • 4 Amit January 24, 2023, 1:39 pm

    Wow.. one of the biggest gems I’ve had from Monevator in recent times. Thanks for letting us know.

  • 5 Rue January 24, 2023, 2:06 pm

    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!)

  • 6 Andy January 24, 2023, 2:19 pm

    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?

  • 7 ballard January 24, 2023, 2:39 pm

    @ Andy

    Go to the ‘Transactions’ section, then ‘Cash statement’ and you should be able to see an interest credit each month.

  • 8 Ali January 24, 2023, 2:42 pm

    Is it a daft question to check whether cash held like this in a S&S ISA is still kept within the ISA wrapper?

  • 9 Nick Hudson January 24, 2023, 3:17 pm

    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.

  • 10 DJFire January 24, 2023, 3:27 pm

    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!

  • 11 Lee Briggs January 24, 2023, 3:42 pm

    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!

  • 12 Giles January 24, 2023, 3:48 pm

    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.

  • 13 Doodle January 24, 2023, 3:50 pm

    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.

  • 14 Andy January 24, 2023, 4:00 pm

    @ballard

    Thanks! 🙂

  • 15 WCTL Flashheart January 24, 2023, 4:46 pm

    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.

  • 16 Giles January 24, 2023, 5:18 pm

    @ Flashheart

    I miss Rik Mayall!

  • 17 Keith January 24, 2023, 8:35 pm

    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.

  • 18 Peter January 24, 2023, 11:13 pm

    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.

  • 19 mr_jetlag January 25, 2023, 7:41 am

    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…

  • 20 Onedrew January 25, 2023, 9:17 am

    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.”

  • 21 Mat109 January 25, 2023, 9:34 am

    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.

  • 22 Tufty January 25, 2023, 11:05 am

    @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

  • 23 The Accumulator January 25, 2023, 11:56 am

    @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.

  • 24 FIREstarter January 25, 2023, 12:31 pm

    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?

  • 25 The Accumulator January 25, 2023, 12:46 pm

    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.

  • 26 FIREstarter January 25, 2023, 12:55 pm

    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.

  • 27 mr_jetlag January 25, 2023, 12:56 pm

    @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.

  • 28 Matthew Shipton January 25, 2023, 1:09 pm

    @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!

  • 29 ballard January 25, 2023, 1:30 pm

    @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.

  • 30 Tufty January 25, 2023, 1:48 pm

    @ballard . Oops. Maths was never my strong point! 😉

  • 31 Onedrew January 25, 2023, 1:50 pm

    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.

  • 32 Nick Buckley January 25, 2023, 8:02 pm

    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.

  • 33 Algernond January 25, 2023, 8:03 pm

    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….

  • 34 Sparschwein January 25, 2023, 10:05 pm

    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.

  • 35 The Accumulator January 26, 2023, 8:54 am

    @ 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!

  • 36 John January 26, 2023, 2:53 pm

    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

  • 37 Hague January 26, 2023, 3:52 pm

    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?

  • 38 Chris January 26, 2023, 4:28 pm

    @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).

  • 39 mr_jetlag January 26, 2023, 4:40 pm

    @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

  • 40 Cdlse January 26, 2023, 6:42 pm

    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?

  • 41 The Accumulator January 26, 2023, 10:00 pm
  • 42 John January 26, 2023, 11:27 pm

    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.

  • 43 Onedrew January 27, 2023, 12:22 am

    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?

  • 44 Hague January 27, 2023, 8:46 am

    @Mr Jetlag.

    Thanks. Interesting to know.

  • 45 Mat109 January 27, 2023, 11:01 am

    @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.

  • 46 platformer January 28, 2023, 1:57 pm

    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).

  • 47 Student Grant January 29, 2023, 5:06 pm

    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.

  • 48 Al Cam January 30, 2023, 9:03 am

    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

  • 49 Gareth January 30, 2023, 11:11 am

    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…

  • 50 John January 30, 2023, 11:31 am

    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.

  • 51 Chris January 30, 2023, 2:00 pm

    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.

  • 52 Chris January 30, 2023, 4:15 pm

    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.

  • 53 Gareth January 30, 2023, 10:26 pm

    Thanks for the breakdown Chris. The FT fund compare was a good shout. Some food for thought there.

    Much appreciated.

    Gareth

  • 54 Mezzanine January 31, 2023, 12:24 am

    @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.

  • 55 Bob January 31, 2023, 5:07 pm

    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.

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