I'm with the Royal London Short Term Money market account and very happy with it. A steady 5% a year - at the moment. The ideal place to park my SIPP with two years left until I retire. If interest rates fall sharply then I will consider moving funds back into a global index fund.
This is timely. I have just over £20,000 in my Vanguard portfolio with £8000 emergency fund in a building society that matures in August and £2000 regular saver with HSBC that matures at the beginning of March. I'm planning to put both of them into my Vanguard portfolio in the VASSTAI money market fund when they mature to take my portfolio value over £32,000 so I'm not suffering their extra fixed fee costs. Good to know all the funds are so similar that I can do that not feeling I'm missing out on a better money market fund elsewhere.
Hi @kevinbrook7033 I'm glad this was well-timed for you! I think a lot of people are surprised at how similar the returns are for accumulation money market funds. But also things like global equity funds. Thanks, Ramin.
Thanks Ramin, great information. I put my tax money in CSH2 in December, it’s back out now as the tax is due, but I’ve also for the first time put my corporation tax money into CSH2, instead of earning zero interest. Eventually I will invest a small amount of company money (if all goes well), probably in VHVG which is where my pension and ISA sits, but MMF for the tax money is a good call I think
A. J. Bell SIPP charges are the same up to £250,000 - 0.25% Funds (0-£250,000) 0.25% ETFs (account charge cap of £10 per month, kicks in at holding of £48000)
Hi @Dayona2 thanks for your comment. This page is helpful www.ajbell.co.uk/pensions/sipp/charges and as you say the charge cap for shares (which includes ETFs) is £10 per month for AJ Bell SIPPs. I guess you mean at £48,000 it becomes more cost-effective to hold ETFs rather than funds because at that point 0.25% becomes more expensive than a fixed £120 per year (48000x0.0025 = 120). Thanks, Ramin
Hi @frederickwoof5785 if you have an accumulation money market fund the price doesn't fall if the Bank of England lowers Bank Rate. The rate of return decreases i.e. the rate at which its value increases per month or year decreases. That's the beauty of having such a short duration. Thanks, Ramin.
Im currently in vanguards sterling money market fund, for some of my money allotted to buy a property in the next 6 month’s. Cant afford to risk a crash, so happy to get a smaller return for low risk. However, with interest rates going down is there a similar but better option available which is worth considering?
Hi @Bluearmy76 buying single UK government bonds might be something to consider. I've made several videos about this. You can lock in a fixed rate of return if you hold the bond to maturity and buying them is quite easy. The community discusses this a lot in our chat forum - if you want a helping hand you can find out more here: pensioncraft.com/membership Thanks, Ramin.
Hi @sal83j I think the best thing is that you can hold it in a Stocks & Shares ISA or SIPP and generate SONIA (which beats many savings accounts) tax-free with the ability to sell almost instantly. Then if an opportunity arises in stocks or other investments you can switch quickly. If the money was in a savings account you might be locked in for some period of time but you would also have to transfer the balance into your ISA or SIPP which could potentially take a long time. Thanks, Ramin.
Thanks for the video Ramin. Quality, as always. My ISA and pension are both maxed out, and will be for the next two to three years (I sold a rental property). So I need somewhere to park my cash outside a tax wrapper while I wait for the next tax year to pile it into my ISA and SIPP again. I’ve gone with a bond ladder (specifically TN25 and T26 gilts), because of the low yield/high capital gain. I did consider a S&S GIA but never really thought about a money market fund. I’m correct in thinking all gains are taxable right? So in my particular circumstances I think I did the right thing
Hi @Banthah thanks! Yes the gains are treated as savings income. PensionCrafters usually buy the income version of money market funds so that they can avoid the complexity of excess reportable income. Thanks, Ramin.
@ thanks for taking the time to answer. I appreciate that. Keep doing what you’re doing - you’re providing such useful information that literally changes people’s lives for the better 👍
Is it good to maybe put the 2-3 years worth of pension income buffer in a money market fund? that way you aren't taking it out all at once to put into a savings account and therefore minimising tax as you only take out when you need it.
Hi @MrFujisawa I know some of the PensionCrafters do just that. It all depends on rates - it's always worth checking whether gilts held to maturity would generate a higher rate of return. Plus that rate for gilts is locked in whereas money market funds generate a variable rate of return linked to Bank Rate. Thanks, Ramin
This is sensible and what i olan to do. Then if theres a crash, you withdraw money from this (not your money invested elsewhere Eg, S&P500) and let things recover (which they always do after 2/3years 🫡
My works pension doesn’t have a gilts or money market fund. I’m thinking of putting £100pm into gilts inside an ISA but don’t know the best way to go as I don’t want charges gobbling it all up. Age 55 UK basic rate tax payer. Not loads of disposable income. The idea is to potentially live partly off this type of investment between 65 and state pension age of 67. Any ideas greatly appreciated.
Hi @tunokies if you've got small amounts to invest then a fixed fee platform like Interactive Investor is expensive because as a percentage of your invested amount the fixed fee is large e.g. "Investor Essentials plan: £4.99 a month. Our low-cost plan for those investing up to £50,000. UK and US trades are £3.99" So if you have £1,000 that's 4.99*12/1000 or a whopping 6%-ish annual fee. Platforms like IWeb allow you to buy gilts cheaply within an ISA. I'm sure other cheap platforms that offer gilts will crop up over time. Thanks, Ramin.
Am I right that Luxor Smart fund has 10% junk bonds in its portfolio and is this something we should concern ourselves when looking between funds for a home for "safe money". Is liquidity risk ever a potential issue with MMF's?
Hi @DavidLee-uh3xz no it doesn't - that's the collateral basket for the swap. It has little bearing on the safety of the fund other than reducing counterparty risk (which is the point of collateral). Liquidity risk is very low for a money market fund i.e. they can be sold very quickly. Their holdings are also chosen to be liquid, particularly the UK short-term bonds. Commercial paper is less liquid, particularly in a crisis, so if that's a concern you might want to check how much commercial paper is in the funds that you buy. Thanks, Ramin.
I love the grounded reality of this channel!!! *If you are not in the financial market space right now, you are making a huge mistake. I understand that it could be due to ignorance, but if you want to make your money work for you..prevent inflation*
Thanks for the video! How are these MMFs treated in terms of tax by the UK goverment? I understand that inside an ISA, they are tax free by definition. But in a GIA, any gain you make over a year, is that liable to savings interest tax, or CGT? Also does it make a difference if you time your MMF investement and sell them before the end of a tax year to make use of your CGT allowance?
I *may* be talking out of my arse, but i am pretty sure MMF's are treated as paying Interest (therefore taxable as Income Tax) instead of being a Chargeable Gain and taxed with CGT. There is a Monevator article i read a year ago but i cannot find it. If i find it i will come back and edit to say the title of the article. EDIT - Monevator article is literally just called "What are money market funds?" lol.
You would incur CGT, interest income and for offshore funds possibly excess reportable income. When you sell, you need to do your workings for the CGT and Eri. You’re supposed to report Eri as it’s foreign , regardless of the value and your not claiming credit. Doesn’t make a difference for accumulation funds, can’t avoid interest. Go look at reporting funds period and notional distribution dates for Eri and shares held on the ending date. The point here is avoid Offshore funds / ETFs in a GIA unless you understand this ! I believe uk funds are legally required to pay all income so those might be better to take the foreign headaches away. HMRC customer forum is great and plenty of tax docs exist.
@@K3end0yes, stick to onshore Uk funds with their income / dist versions. Brokers aren’t required to tell you foreign Eri etc so it’s on you. Not worth the hassle for a few £k. Risk is getting a chaser letter from HMRC for being late or wrong. As Ramin says , if you don’t understand, don’t do it.
Hi @PaulSmith-zt7ix are european dividend ETFs big dividend payers? I wouldn't have thought so. The UK is more of a dividend paying market surely? Thanks, Ramin.
What’s the difference between a money market fund and an ultra short bond fund. I think the bond funds invest in more short term corporate dept than MMF’s do. So slightly more risk and therefore yield . ( Are they a good investment )
Hi @jposhpaws2588 the difference is duration risk. The duration of a money market fund is very short indeed (about a month) so the volatility of the fund will be very low. If yield curves rise then the ultra short bond fund would fall a bit whereas the money market fund would hardly fall at all. But the two are similar in terms of risk and return because a money market fund will buy lots of about-to-mature government bonds. Thanks, Ramin.
Effectively, yes. It's why it offers such a good cash ISA rate. No real need to use a MMF on T212. It's on other S&S platforms which don't offer such a good cash offering which a MMF is a good tool. I.e. I use one for my S&S LISA over on HL.
Hi @aleksanderszczurek8629 yes that's how they generate the return on those accounts. But personally I prefer to have the flexibility of a stocks & shares ISA because if an opportunity comes along (a huge stock selloff) I can switch into stocks very quickly whereas you'd have to do an ISA transfer to do the same with a cash ISA. Thanks, Ramin
How about MM ETFs? They appear to be harder to find for us skinflints who like to take advantage of ETFs being charged lower platform fees in a SIPP. There are some very short term bond ETFs, which should perform similarly although they aren't exactly the same.
Hi @nighttrain1236 bizarrely there's only one accumulation money market ETF in the UK (which I mention in the video) which is CSH2. Alternatively you could move to a platform where funds and ETFs don't have different platform fees. Thanks, Ramin.
Hi @BuyVWRD no it wouldn't because it has (a) credit risk and (b) a bit of duration risk (too much for a money market fund). For example, one constraint is that the fund must have a weighted average maximum maturity of 60 days and a maximum individual duration of 397 days for any single investment. ERND wouldn't satisfy these criteria I suspect. Thanks, Ramin.
Hi Ramin, could you comment a little bit more on the underlying structure of CSH2? That it is a synthetic fund, holding equities (?), makes me a little nervous!
Same here. Synthetic I think means that it doesn't actually holds the underlying assets i.e. bonds or Commercial Paper but some kind of derivatives? They usually have some kind of over collateralization i.e. 110% but so do the ones with physical sampling. In other words, how do you judge if those derivatives are of good quality?
Hi @talexe it's a total return swap held with three banks that actually generates the return. Then this is currency hedged into sterling with another derivative overlay. It does the job, and the currency hedge is a guess on my part because they refused to do an interview to discuss the fund and the fact sheet isn't very helpful. Some people don't like the fund for this reason, and personally I was hoping Vanguard would release an ETF-wrapped version of their money market fund which _is_ transparent. Fingers crossed! Thanks, Ramin
Hi @roconnor01 the platform where you hold the money market fund is covered by the FSCS if it fails. The money market fund isn't. But as they invest in such low-risk investments the risk of loss for a money market fund is very, very low anyway so the FSCS guarantee wouldn't be particularly helpful. Thanks, Ramin.
I’ve parked my next investment pot in CSH2. My thinking is that the US is expensive atm EMs are too risky and the UK is pretty moribund ( despite being undervalued)
Hi @infour44 remember that over the long-term (a decade or longer) money market funds are extremely likely to underperform stocks with the average underperformance per year being 5% or more. That's the ugly side of risk and return which is that if you're too cautious for a long time your returns will be relatively poor. For money you're not going to need for a decade or longer some equity exposure is a good idea. Thanks, Ramin.
Exactly, yeah 5 percent per year is far from mind melting performance, but that graph may look alot better if rates stay high for the next 10-15 years, plus you would expect equities to under perform if rates remain high, they simply aren't used to it and alot of valuations have been built on lower rates / AI expectations.
So if I make a lump sum into my pension and s&s isa and wanted then buy etfs over time rather at a single price would a MMF be a good place to park the funds as I convert then over the course of say the tax year?
Hi @JevansUK that's what many people (and companies) use money market funds for - a temporary, safe store of value. However with rates this high people are using them more widely as the "safe" portion of their portfolio rather than bond funds which have additional duration risk without much higher (or even lower) return. The story will change as yield curves and SONIA change so it's worth keeping an eye on this. Thanks, Ramin
@Pensioncraft thanks Ramin, I have some coupon rate 12% and 9 1/4 % bonds although both have lowered yields now as their price has increased they are still both higher risk than I would like to take currently with additional funds especially if I want to money the money on since my platform has quite a price spread on these assets.
Very informative video as usual. Maybe a silly question but would you split your funds across say a small number of money market funds? Or do you consider each provider is so large, well established and managed to not need to diversify? Thanks
Hi @ianmcbride6955 I don't worry too much about the risk of money market funds given the legal protection of fundholders in the UK and the low risk nature of the funds. Some of the PensionCrafters do split their funds (both equity and money market) so it depends on your perceived risk of loss. Thanks, Ramin
If you don’t mind me asking what is the legal protection of say the Royal London Short Term Money Market Y Acc? Are the funds held in trust by Royal London if Royal London get into difficulty? I don’t think money market funds are covered by the FSCS? Many thanks.
Hi @pierrelarouge if you google "Excess Reportable Income CSH2" and you'll find this thread community.trading212.com/t/csh2-excess-reportable-income/64787/5 which is quite helpful. Personally I wouldn't hold it outside an ISA or SIPP for this reason. PensionCrafters who do have money market funds outside an ISA or SIPP generally go for income funds rather than accumulation funds for just this reason - simplicity. Thanks, Ramin.
@ no problem, as my platform is Vanguard and they only have bond funds ( wasn't keen on the fact i had no control over when they would be sold) , there is no option on their platform for me to buy single bonds ( but you already know that ) i can hold to maturity,went with the money market fund option. Not sure if its the best option but its an option
@ @ no problem, as my platform is Vanguard and they only have bond funds ( wasn't keen on the fact i had no control over when they would be sold) , there is no option on their platform for me to buy single bonds ( but you already know that ) i can hold to maturity,went with the money market fund option. Not sure if its the best option but its an option
Hi @venil82 google "Excess Reportable Income CSH2" and you'll find this thread community.trading212.com/t/csh2-excess-reportable-income/64787/5 which is quite helpful. Personally I wouldn't hold it outside an ISA or SIPP for this reason. PensionCrafters who do have money market funds outside an ISA or SIPP generally go for income funds rather than accumulation funds for just this reason - simplicity. Thanks, Ramin.
@@PensioncraftI read that link and still don’t understand it. Is there a simple way of explaining it? Presumably not if there is a whole thread dedicated to it!
Summary: - CSH2 is a low-risk, accumulating ETF that tracks money market rates. It has UK Reporting Fund status. - Holders of CSH2 on the reporting date of 31st October are liable for any Excess Reportable Income (ERI), which is taxed at income tax rates. - However, if you do not hold CSH2 on the 31st October reporting date, you will only be subject to Capital Gains Tax (CGT) when you sell the shares, rather than income tax on the ERI. - The ERI amount can vary year-to-year, but in recent years it has been 0, meaning no income tax liability. - Selling just before the 31st October reporting date and rebuying shortly after can help avoid the income tax on ERI, as long as the shares are not repurchased within 30 days (to avoid the "bed and breakfasting" rules).
Hi @konicky income from money market funds is taxed as interest. More in the "Tax on income" section here techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives Thanks, Ramin
Am i missing something here - why would someone park cash in a MM fund vs a flexible cash ISA, or vice versa? MM fund gives better returns seemingly, so im considering moving from cash isa to MM fund (for emergency fund)
Hi @benwhitehurst841 the only reason I can think of is the nature of the FSCS guarantee which covers the Cash ISA (which is like a deposit) but FSCS only covers the failure of the platform if you have a stocks & shares ISA with a money market fund in it. I don't think money market funds are risky enough to worry about losses but other people might worry about that. Thanks, Ramin
I've moved 80% into Money Market now and 20% in Global Equities. Too much risk at the moment and have locked in the gains. I may be wrong 😂😂😂 but I believe there will be a 💥.
I did the same but with 100% and at the start of last year, so missed out on the big S&P gains etc. Ended up being the wrong call after a strong 2023. Still, happy with the 5% (as my main pension wholly in stocks so I didn't completely miss out).
@@psprog no worries. Live and learn. I'm planning to slowly feed back in over the next months if there's dips. I also did some cleanup as had a mixed bag of funds including non-performers with bonds etc. For your pension, check you're in a decent fund. Many are in these zombie mixed funds that go nowhere and high charges.
@@nighttrain1236 stick to your plan. I see the markets heading higher yet but with lots of volatility. I'm cleaning up my funds and looking to feed back in over time.
@@TotalBuffoon Yeah I went for a mix of trackers in the pension (got rid of the emerging markets one as that did nothing to speak of). I'm probably going to reduce the MM too and drip feed on the dips. Also need to switch to that ETF - didn't know they existed! - as I don't like the delay selling the MMF (next day) - that's what stopped me trading on the dips more often (I do that successfully on T212 as the cash interest rate is near MMF so easy to dip in and out) I do plan to retire in next 2 or 3 years so will always have at least a decent chunk in a MMF (unless rates fall back to near zero!)
Hi @coderider3022 Vanguard charges no trade commission if you don't trade on a live price (I never do). On any platform you will have a bid-offer spread. If you trade an OEIC there's no bid-offer spread. More here www.vanguardinvestor.co.uk/what-we-offer/fees-explained The platform fee is 0.15% capped at £375 per year and (soon) floored at £48 per year. Thanks, Ramin
@AlexisMoore-nx6wf You're welcome! I've only recently learned about this. Whether CSH2 (inc or acc) incurs CGT, income tax or dividend tax outside a tax wrapper is another complication (and there's this thing called Excess Reportable Income)...
Hi @AlexisMoore-nx6wf that's the result of the total return swaps that generate the return for CSH2 plus the currency swap that converts the fund from euros to sterling. The complexity and opacity of the fund have me wishing for Vanguard to release an ETF-wrapped version of their money market fund which would be transparent and simple. That way people could hold that fund on ETF-only platforms like Trading 212 and InvestEngine. It's ridiculous that in the UK we have only ONE accumulation money market ETF available (as far as I know). Thanks, Ramin.
Hi @Uk-Tony an interesting fact is that both in the US and the UK bills (which generate roughly the same rate of return as money market funds) from 1900-2022 beat the rate of inflation both in the US (by 0.4%) and the UK (by 0.9%). That's because money market rates adjust upwards when inflation increases. Thanks, Ramin.
MMF are great for a buy-and-forget strategy in an ISA. However, outside of a tax-free account, I would argue that short-term low-coupon gilts are a better choice, especially for high income earners, as MMF proceeds are taxed as "income".
Hi @OctavianGuzu I agree which is why we recently added gross redemption yield to our gilt table in PensionCraft pensioncraft.com/trackers/uk-gilts/ so you can compare against other investments outside an ISA or SIPP. You can also filter on coupon min/max. Thanks, Ramin.
I’ve gone 50/50. If the market continues to rise, I still get 50% of the increase. If it falls, my hit is limited to 50% and I have cash to buy the dip.
Hi @mimigization bear in mind that _on average_ and over the long term (1900-2022) money market funds have earned about 5% less per year than stock funds. This is called "cash drag". Over the shorter term, say a few months or a year, which one outperforms is anyone's guess. Thanks, Ramin
Hi @M3GTR8ABBAS over the period from 1900-2022 US equity beat inflation by 6.4% per year and in the UK during the same period UK stocks beat UK inflation by 5.3% per year. Stocks crushed inflation. Thanks, Ramin.
Hi @robinhall5397 there are several problems with CSH2 (lack of transparency, complex underlying swap structure, poor communication from the fund manager who still refuses to even acknowledge my emails). And the price is another one if you don't have a lot to invest. However, on platforms that allow fractional shares like Trading 212 this isn't an issue. I've got my fingers crossed that Vanguard will make its money market fund available with an ETF wrapper. Thanks, Ramin.
Hi @user-ms5tx9me4x try this: "What we offer" -> "Our full list of funds" -> "Building my own portfolio" -> select the "Money market" checkbox (there's only one fund they offer in two flavours). It's called the "Sterling Short-Term Money Market Fund". You can choose the income or accumulation versions. Or here's the link www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-a-gbp-accumulation/overview (not a recommendation, do your own research!) Thanks, Ramin.
@@mrtod13 yh, they're good 👍 compared to most but obviously limited to 20k input and you would need to transfer in if you haven't got your ISA in there. I've started a small account with them to test out but am with HL at the moment.
@@tancreddehauteville764 Remember your global equity fund is weighted approximately 60% U.S.A. As long as you’re diversified, you have your asset allocation (with bonds) that you’re happy with for stability and stick to your long term plan, none of this matters. The biggest risk to your future wealth is YOU and how you react emotionally and psychologically.
I love it when you make a video on the exact thing i am trying to figure out. Thanks!
Best financial channel on TH-cam and luckily happens to be UK based. Absolutely ideal!
I am so glad you enjoy it thank you @ripvanmarlowe
Another great video, short, snappy, informative, please please please keep up this amazing work! Many thanks
I'm with the Royal London Short Term Money market account and very happy with it. A steady 5% a year - at the moment. The ideal place to park my SIPP with two years left until I retire. If interest rates fall sharply then I will consider moving funds back into a global index fund.
Hi @tancreddehauteville764 that's one of the ones in our "Cheapest Funds" list for members. Thanks, Ramin
@@Pensioncraft I'm also considering the CSH2 ETF as an additional option.
good strategy!
This is timely. I have just over £20,000 in my Vanguard portfolio with £8000 emergency fund in a building society that matures in August and £2000 regular saver with HSBC that matures at the beginning of March. I'm planning to put both of them into my Vanguard portfolio in the VASSTAI money market fund when they mature to take my portfolio value over £32,000 so I'm not suffering their extra fixed fee costs.
Good to know all the funds are so similar that I can do that not feeling I'm missing out on a better money market fund elsewhere.
Hi @kevinbrook7033 I'm glad this was well-timed for you! I think a lot of people are surprised at how similar the returns are for accumulation money market funds. But also things like global equity funds. Thanks, Ramin.
Another brilliant video. Even good as a refresher to help consolidate existing knowledge.
Much appreciated @markukblackmore
Thanks Ramin, great information. I put my tax money in CSH2 in December, it’s back out now as the tax is due, but I’ve also for the first time put my corporation tax money into CSH2, instead of earning zero interest. Eventually I will invest a small amount of company money (if all goes well), probably in VHVG which is where my pension and ISA sits, but MMF for the tax money is a good call I think
Exactly what I do too. I keep tax money and any balance for my 0% credit card in CSH2.
Hi @Crazydiamond_1974 we use CSH2 as well for the company's savings for the same reason as you. Thanks, Ramin.
This lightyear platform sounds really good actually !
Hi @billykotsos4642 we try to choose our commercial partners carefully, so I'd agree that it's good. Thanks, Ramin.
Not so temporarily when real rates are so high with sticky inflation ahead
Thx, I wish you could do "the best money marked" for CHF
Accumulation version - how do you see or calculate the income? Or do you just look at the income equivalent?
A. J. Bell SIPP charges are the same up to £250,000 -
0.25% Funds (0-£250,000)
0.25% ETFs (account charge cap of £10 per month, kicks in at holding of £48000)
Hi @Dayona2 thanks for your comment. This page is helpful www.ajbell.co.uk/pensions/sipp/charges and as you say the charge cap for shares (which includes ETFs) is £10 per month for AJ Bell SIPPs. I guess you mean at £48,000 it becomes more cost-effective to hold ETFs rather than funds because at that point 0.25% becomes more expensive than a fixed £120 per year (48000x0.0025 = 120). Thanks, Ramin
Keep an eye on the banks base interest rate decisions (boe). When they go down so does the mmf's.😮
Right now locking in a fixed rate with Uk gilts look more attractive than MMF’s
Hi @frederickwoof5785 if you have an accumulation money market fund the price doesn't fall if the Bank of England lowers Bank Rate. The rate of return decreases i.e. the rate at which its value increases per month or year decreases. That's the beauty of having such a short duration. Thanks, Ramin.
HL platform users have to consider etf spread and dealing charges v funds. Large sums (20k+) invested longer than 3 months = etf, otherwise use a fund
Do you know of good MM ETFs?
Csh2
How about a review of this "Lightyear" platform in time for the oncoming iSA season? Looks competitive.
Hi @patchpeek I don't usually do platform reviews but it's an interesting idea, thank you for the suggestion. Thanks, Ramin.
Can we get deep dive on the synthetic aspect of CSH2 please
Upvote!
Please don't encourage me to go full nerd @jameswalker366 - my partner Laura would never forgive you. Thanks, Ramin
On HL, if you complete the complex questionnaires on ETFs, it’s all about synthetics.
Thanks Ramin 🙂
My pleasure 😊 @alexm7310
Im currently in vanguards sterling money market fund, for some of my money allotted to buy a property in the next 6 month’s. Cant afford to risk a crash, so happy to get a smaller return for low risk.
However, with interest rates going down is there a similar but better option available which is worth considering?
Hi @Bluearmy76 buying single UK government bonds might be something to consider. I've made several videos about this. You can lock in a fixed rate of return if you hold the bond to maturity and buying them is quite easy. The community discusses this a lot in our chat forum - if you want a helping hand you can find out more here: pensioncraft.com/membership Thanks, Ramin.
@ Thanks for the reply, really appreciate it!! Will take a look 🙏🏻
Great video… can someone please explain why you’d choose an MMF to park cash instead of a savings account? Thank you
Generally a tad higher rate.
Safe haven for some cash in within your SIPP.
Hi @sal83j I think the best thing is that you can hold it in a Stocks & Shares ISA or SIPP and generate SONIA (which beats many savings accounts) tax-free with the ability to sell almost instantly. Then if an opportunity arises in stocks or other investments you can switch quickly. If the money was in a savings account you might be locked in for some period of time but you would also have to transfer the balance into your ISA or SIPP which could potentially take a long time. Thanks, Ramin.
Thanks for the video Ramin. Quality, as always.
My ISA and pension are both maxed out, and will be for the next two to three years (I sold a rental property).
So I need somewhere to park my cash outside a tax wrapper while I wait for the next tax year to pile it into my ISA and SIPP again.
I’ve gone with a bond ladder (specifically TN25 and T26 gilts), because of the low yield/high capital gain. I did consider a S&S GIA but never really thought about a money market fund.
I’m correct in thinking all gains are taxable right? So in my particular circumstances I think I did the right thing
Hi @Banthah thanks! Yes the gains are treated as savings income. PensionCrafters usually buy the income version of money market funds so that they can avoid the complexity of excess reportable income. Thanks, Ramin.
@ thanks for taking the time to answer. I appreciate that.
Keep doing what you’re doing - you’re providing such useful information that literally changes people’s lives for the better 👍
Is it good to maybe put the 2-3 years worth of pension income buffer in a money market fund? that way you aren't taking it out all at once to put into a savings account and therefore minimising tax as you only take out when you need it.
Hi @MrFujisawa I know some of the PensionCrafters do just that. It all depends on rates - it's always worth checking whether gilts held to maturity would generate a higher rate of return. Plus that rate for gilts is locked in whereas money market funds generate a variable rate of return linked to Bank Rate. Thanks, Ramin
This is sensible and what i olan to do. Then if theres a crash, you withdraw money from this (not your money invested elsewhere Eg, S&P500) and let things recover (which they always do after 2/3years 🫡
My works pension doesn’t have a gilts or money market fund. I’m thinking of putting £100pm into gilts inside an ISA but don’t know the best way to go as I don’t want charges gobbling it all up.
Age 55 UK basic rate tax payer. Not loads of disposable income.
The idea is to potentially live partly off this type of investment between 65 and state pension age of 67. Any ideas greatly appreciated.
Hi @tunokies if you've got small amounts to invest then a fixed fee platform like Interactive Investor is expensive because as a percentage of your invested amount the fixed fee is large e.g. "Investor Essentials plan: £4.99 a month. Our low-cost plan for those investing up to £50,000. UK and US trades are £3.99" So if you have £1,000 that's 4.99*12/1000 or a whopping 6%-ish annual fee. Platforms like IWeb allow you to buy gilts cheaply within an ISA. I'm sure other cheap platforms that offer gilts will crop up over time. Thanks, Ramin.
Am I right that Luxor Smart fund has 10% junk bonds in its portfolio and is this something we should concern ourselves when looking between funds for a home for "safe money". Is liquidity risk ever a potential issue with MMF's?
Hi @DavidLee-uh3xz no it doesn't - that's the collateral basket for the swap. It has little bearing on the safety of the fund other than reducing counterparty risk (which is the point of collateral). Liquidity risk is very low for a money market fund i.e. they can be sold very quickly. Their holdings are also chosen to be liquid, particularly the UK short-term bonds. Commercial paper is less liquid, particularly in a crisis, so if that's a concern you might want to check how much commercial paper is in the funds that you buy. Thanks, Ramin.
I love the grounded reality of this channel!!!
*If you are not in the financial market space right now, you are making a huge mistake. I understand that it could be due to ignorance, but if you want to make your money work for you..prevent inflation*
An excellent informative video. Thanks.
Hi @rbowler88 thank you! Ramin.
Thanks for the video! How are these MMFs treated in terms of tax by the UK goverment? I understand that inside an ISA, they are tax free by definition. But in a GIA, any gain you make over a year, is that liable to savings interest tax, or CGT? Also does it make a difference if you time your MMF investement and sell them before the end of a tax year to make use of your CGT allowance?
I *may* be talking out of my arse, but i am pretty sure MMF's are treated as paying Interest (therefore taxable as Income Tax) instead of being a Chargeable Gain and taxed with CGT.
There is a Monevator article i read a year ago but i cannot find it. If i find it i will come back and edit to say the title of the article.
EDIT - Monevator article is literally just called "What are money market funds?" lol.
You would incur CGT, interest income and for offshore funds possibly excess reportable income. When you sell, you need to do your workings for the CGT and Eri. You’re supposed to report Eri as it’s foreign , regardless of the value and your not claiming credit. Doesn’t make a difference for accumulation funds, can’t avoid interest. Go look at reporting funds period and notional distribution dates for Eri and shares held on the ending date. The point here is avoid Offshore funds / ETFs in a GIA unless you understand this ! I believe uk funds are legally required to pay all income so those might be better to take the foreign headaches away. HMRC customer forum is great and plenty of tax docs exist.
@@coderider3022 Ah so investing in foreign MMF's in a GIA is a headache, but UK ones are much simpler? Good distinction, thanks for the advice.
@@K3end0yes, stick to onshore Uk funds with their income / dist versions. Brokers aren’t required to tell you foreign Eri etc so it’s on you. Not worth the hassle for a few £k. Risk is getting a chaser letter from HMRC for being late or wrong. As Ramin says , if you don’t understand, don’t do it.
Please video about Europe dividend etf
Hi @PaulSmith-zt7ix are european dividend ETFs big dividend payers? I wouldn't have thought so. The UK is more of a dividend paying market surely? Thanks, Ramin.
What’s the difference between a money market fund and an ultra short bond fund. I think the bond funds invest in more short term corporate dept than MMF’s do. So slightly more risk and therefore yield . ( Are they a good investment )
I'm with ERNS from iShares. It's income only so I sell before ex dividend and re buy on ex dividend to maximise returns.
Hi @jposhpaws2588 the difference is duration risk. The duration of a money market fund is very short indeed (about a month) so the volatility of the fund will be very low. If yield curves rise then the ultra short bond fund would fall a bit whereas the money market fund would hardly fall at all. But the two are similar in terms of risk and return because a money market fund will buy lots of about-to-mature government bonds. Thanks, Ramin.
Isn't Cash ISA on T212 basically a collection of money market funds?
Effectively, yes. It's why it offers such a good cash ISA rate. No real need to use a MMF on T212.
It's on other S&S platforms which don't offer such a good cash offering which a MMF is a good tool. I.e. I use one for my S&S LISA over on HL.
Very good point, hadn't considered that!
Hi @aleksanderszczurek8629 yes that's how they generate the return on those accounts. But personally I prefer to have the flexibility of a stocks & shares ISA because if an opportunity comes along (a huge stock selloff) I can switch into stocks very quickly whereas you'd have to do an ISA transfer to do the same with a cash ISA. Thanks, Ramin
Technically, no. Cash ISA funds are held in banks. But for cash in a S&S ISA, yes, it is MMF (but you have to opt in).
@@Pensioncraft The cash ISA holds cash 100% in banks, whereas cash in the Invest and Stocks ISA accounts are split between QMMFs and banks
How about MM ETFs? They appear to be harder to find for us skinflints who like to take advantage of ETFs being charged lower platform fees in a SIPP. There are some very short term bond ETFs, which should perform similarly although they aren't exactly the same.
Hi @nighttrain1236 bizarrely there's only one accumulation money market ETF in the UK (which I mention in the video) which is CSH2. Alternatively you could move to a platform where funds and ETFs don't have different platform fees. Thanks, Ramin.
@PensionCraft Ramin, would ERND (short term corporate bonds) be classified as a money market fund? Or does it have to be government short term debt?
Hi @BuyVWRD no it wouldn't because it has (a) credit risk and (b) a bit of duration risk (too much for a money market fund). For example, one constraint is that the fund must have a weighted average maximum maturity of 60 days and a maximum individual duration of 397 days for any single investment. ERND wouldn't satisfy these criteria I suspect. Thanks, Ramin.
@PensionCraft thanks for the information! Much appreciated. Big fan of the channel and podcast
Hi Ramin, could you comment a little bit more on the underlying structure of CSH2? That it is a synthetic fund, holding equities (?), makes me a little nervous!
Agree. Definitely would like to a deep dive on this
Same here. Synthetic I think means that it doesn't actually holds the underlying assets i.e. bonds or Commercial Paper but some kind of derivatives?
They usually have some kind of over collateralization i.e. 110% but so do the ones with physical sampling.
In other words, how do you judge if those derivatives are of good quality?
Hi @talexe it's a total return swap held with three banks that actually generates the return. Then this is currency hedged into sterling with another derivative overlay. It does the job, and the currency hedge is a guess on my part because they refused to do an interview to discuss the fund and the fact sheet isn't very helpful. Some people don't like the fund for this reason, and personally I was hoping Vanguard would release an ETF-wrapped version of their money market fund which _is_ transparent. Fingers crossed! Thanks, Ramin
Are money Market Funds covered up to the value of £85,000 with the FCA? I'm thinking of investing in the Vanguard fund.
Hi @roconnor01 the platform where you hold the money market fund is covered by the FSCS if it fails. The money market fund isn't. But as they invest in such low-risk investments the risk of loss for a money market fund is very, very low anyway so the FSCS guarantee wouldn't be particularly helpful. Thanks, Ramin.
@@Pensioncraft Thank you Ramin, I'm much obliged to you for your reply.
I’ve parked my next investment pot in CSH2. My thinking is that the US is expensive atm EMs are too risky and the UK is pretty moribund ( despite being undervalued)
Hi @infour44 remember that over the long-term (a decade or longer) money market funds are extremely likely to underperform stocks with the average underperformance per year being 5% or more. That's the ugly side of risk and return which is that if you're too cautious for a long time your returns will be relatively poor. For money you're not going to need for a decade or longer some equity exposure is a good idea. Thanks, Ramin.
@ Thanks Ramin, appreciated. I was avoiding the froth surrounding the POTUS inauguration.
Rates have been very low so that's why the return has been so low. With normal rates they would have been competitive
Exactly, yeah 5 percent per year is far from mind melting performance, but that graph may look alot better if rates stay high for the next 10-15 years, plus you would expect equities to under perform if rates remain high, they simply aren't used to it and alot of valuations have been built on lower rates / AI expectations.
Define 'normal'.
Historic rates around 4-5%
So if I make a lump sum into my pension and s&s isa and wanted then buy etfs over time rather at a single price would a MMF be a good place to park the funds as I convert then over the course of say the tax year?
Hi @JevansUK that's what many people (and companies) use money market funds for - a temporary, safe store of value. However with rates this high people are using them more widely as the "safe" portion of their portfolio rather than bond funds which have additional duration risk without much higher (or even lower) return. The story will change as yield curves and SONIA change so it's worth keeping an eye on this. Thanks, Ramin
@Pensioncraft thanks Ramin, I have some coupon rate 12% and 9 1/4 % bonds although both have lowered yields now as their price has increased they are still both higher risk than I would like to take currently with additional funds especially if I want to money the money on since my platform has quite a price spread on these assets.
Very informative video as usual. Maybe a silly question but would you split your funds across say a small number of money market funds? Or do you consider each provider is so large, well established and managed to not need to diversify? Thanks
Hi @ianmcbride6955 I don't worry too much about the risk of money market funds given the legal protection of fundholders in the UK and the low risk nature of the funds. Some of the PensionCrafters do split their funds (both equity and money market) so it depends on your perceived risk of loss. Thanks, Ramin
If you don’t mind me asking what is the legal protection of say the Royal London Short Term Money Market Y Acc? Are the funds held in trust by Royal London if Royal London get into difficulty? I don’t think money market funds are covered by the FSCS? Many thanks.
If I put money in the Lxyor etf would the income be classed as dividend for tax purposes or income?
Hi @pierrelarouge if you google "Excess Reportable Income CSH2" and you'll find this thread community.trading212.com/t/csh2-excess-reportable-income/64787/5 which is quite helpful. Personally I wouldn't hold it outside an ISA or SIPP for this reason. PensionCrafters who do have money market funds outside an ISA or SIPP generally go for income funds rather than accumulation funds for just this reason - simplicity. Thanks, Ramin.
90% stocks and 10% money market funds for me. The 10% is about 5 years worth of income.
Interesting @mwscuba - thanks for sharing! Ramin.
Which is how much?
@@tancreddehauteville764 97k
@ no problem, as my platform is Vanguard and they only have bond funds ( wasn't keen on the fact i had no control over when they would be sold) , there is no option on their platform for me to buy single bonds ( but you already know that ) i can hold to maturity,went with the money market fund option. Not sure if its the best option but its an option
@ @ no problem, as my platform is Vanguard and they only have bond funds ( wasn't keen on the fact i had no control over when they would be sold) , there is no option on their platform for me to buy single bonds ( but you already know that ) i can hold to maturity,went with the money market fund option. Not sure if its the best option but its an option
Still i don't understand if csh2 is subject to income tax or CGT only
Hi @venil82 google "Excess Reportable Income CSH2" and you'll find this thread community.trading212.com/t/csh2-excess-reportable-income/64787/5 which is quite helpful. Personally I wouldn't hold it outside an ISA or SIPP for this reason. PensionCrafters who do have money market funds outside an ISA or SIPP generally go for income funds rather than accumulation funds for just this reason - simplicity. Thanks, Ramin.
@@Pensioncraft thank you
@@PensioncraftI read that link and still don’t understand it. Is there a simple way of explaining it? Presumably not if there is a whole thread dedicated to it!
Summary:
- CSH2 is a low-risk, accumulating ETF that tracks money market rates. It has UK Reporting Fund status.
- Holders of CSH2 on the reporting date of 31st October are liable for any Excess Reportable Income (ERI), which is taxed at income tax rates.
- However, if you do not hold CSH2 on the 31st October reporting date, you will only be subject to Capital Gains Tax (CGT) when you sell the shares, rather than income tax on the ERI.
- The ERI amount can vary year-to-year, but in recent years it has been 0, meaning no income tax liability.
- Selling just before the 31st October reporting date and rebuying shortly after can help avoid the income tax on ERI, as long as the shares are not repurchased within 30 days (to avoid the "bed and breakfasting" rules).
Does income from money market funds count as dividends for tax purposes?
Hi @konicky income from money market funds is taxed as interest. More in the "Tax on income" section here techzone.abrdn.com/public/investment/Guide-Taxation-of-Collectives Thanks, Ramin
Am i missing something here - why would someone park cash in a MM fund vs a flexible cash ISA, or vice versa? MM fund gives better returns seemingly, so im considering moving from cash isa to MM fund (for emergency fund)
Hi @benwhitehurst841 the only reason I can think of is the nature of the FSCS guarantee which covers the Cash ISA (which is like a deposit) but FSCS only covers the failure of the platform if you have a stocks & shares ISA with a money market fund in it. I don't think money market funds are risky enough to worry about losses but other people might worry about that. Thanks, Ramin
I've moved 80% into Money Market now and 20% in Global Equities. Too much risk at the moment and have locked in the gains. I may be wrong 😂😂😂 but I believe there will be a 💥.
I did the same but with 100% and at the start of last year, so missed out on the big S&P gains etc. Ended up being the wrong call after a strong 2023. Still, happy with the 5% (as my main pension wholly in stocks so I didn't completely miss out).
Too bearish for me although I have derisked in a similar manner but leaving majority in equity still.
@@psprog no worries. Live and learn. I'm planning to slowly feed back in over the next months if there's dips. I also did some cleanup as had a mixed bag of funds including non-performers with bonds etc.
For your pension, check you're in a decent fund. Many are in these zombie mixed funds that go nowhere and high charges.
@@nighttrain1236 stick to your plan. I see the markets heading higher yet but with lots of volatility. I'm cleaning up my funds and looking to feed back in over time.
@@TotalBuffoon Yeah I went for a mix of trackers in the pension (got rid of the emerging markets one as that did nothing to speak of).
I'm probably going to reduce the MM too and drip feed on the dips. Also need to switch to that ETF - didn't know they existed! - as I don't like the delay selling the MMF (next day) - that's what stopped me trading on the dips more often (I do that successfully on T212 as the cash interest rate is near MMF so easy to dip in and out)
I do plan to retire in next 2 or 3 years so will always have at least a decent chunk in a MMF (unless rates fall back to near zero!)
11:44 vanguard transaction fee is 0.14% which is too expensive.
It isn't, it's 0.12 just google the fund VASSTAI
Hi @coderider3022 Vanguard charges no trade commission if you don't trade on a live price (I never do). On any platform you will have a bid-offer spread. If you trade an OEIC there's no bid-offer spread. More here www.vanguardinvestor.co.uk/what-we-offer/fees-explained The platform fee is 0.15% capped at £375 per year and (soon) floored at £48 per year. Thanks, Ramin
Why does CSH2 look so volatile compared to the other money market funds?
As others have mentioned, it's a synthetic replication holding underlying equity swaps
@@mike-sw Thank you! I'll read up on it.
OK, I've just read up on it. I'm not touching it with a barge pole.
@AlexisMoore-nx6wf You're welcome! I've only recently learned about this. Whether CSH2 (inc or acc) incurs CGT, income tax or dividend tax outside a tax wrapper is another complication (and there's this thing called Excess Reportable Income)...
Hi @AlexisMoore-nx6wf that's the result of the total return swaps that generate the return for CSH2 plus the currency swap that converts the fund from euros to sterling. The complexity and opacity of the fund have me wishing for Vanguard to release an ETF-wrapped version of their money market fund which would be transparent and simple. That way people could hold that fund on ETF-only platforms like Trading 212 and InvestEngine. It's ridiculous that in the UK we have only ONE accumulation money market ETF available (as far as I know). Thanks, Ramin.
MM funds/fiat are melting ice cubes when considering inflation/debasement.
They are ideal vehicles for an emergency fund that you want quick access to or short term savings though.
Hi @Uk-Tony an interesting fact is that both in the US and the UK bills (which generate roughly the same rate of return as money market funds) from 1900-2022 beat the rate of inflation both in the US (by 0.4%) and the UK (by 0.9%). That's because money market rates adjust upwards when inflation increases. Thanks, Ramin.
MMF are great for a buy-and-forget strategy in an ISA. However, outside of a tax-free account, I would argue that short-term low-coupon gilts are a better choice, especially for high income earners, as MMF proceeds are taxed as "income".
Hi @OctavianGuzu I agree which is why we recently added gross redemption yield to our gilt table in PensionCraft pensioncraft.com/trackers/uk-gilts/ so you can compare against other investments outside an ISA or SIPP. You can also filter on coupon min/max. Thanks, Ramin.
I’ve gone 50/50. If the market continues to rise, I still get 50% of the increase.
If it falls, my hit is limited to 50% and I have cash to buy the dip.
Hi @mimigization bear in mind that _on average_ and over the long term (1900-2022) money market funds have earned about 5% less per year than stock funds. This is called "cash drag". Over the shorter term, say a few months or a year, which one outperforms is anyone's guess. Thanks, Ramin
SIPP or ISA?
If you actually want to make money, buy Bitcoin. Index funds barely keep up with inflation.
Hi @M3GTR8ABBAS over the period from 1900-2022 US equity beat inflation by 6.4% per year and in the UK during the same period UK stocks beat UK inflation by 5.3% per year. Stocks crushed inflation. Thanks, Ramin.
Where can I buy the non-ETF funds?
Hi @nintendokings any platform that offers funds (Vanguard, Interactive Investor, IWeb...) Thanks, Ramin.
@ not trading 212 or Invest Engine?:/
At least we have the ETF
Hi, I am a scriptwriter and I want to write for you
That's great @movie-yu9ec just email us at support@pensioncraft.com Thanks!
Isn't there a problem with CSH2 in that the share price is around £1100? Makes it a bit inflexible.... (I am with HL)
Hi @robinhall5397 there are several problems with CSH2 (lack of transparency, complex underlying swap structure, poor communication from the fund manager who still refuses to even acknowledge my emails). And the price is another one if you don't have a lot to invest. However, on platforms that allow fractional shares like Trading 212 this isn't an issue. I've got my fingers crossed that Vanguard will make its money market fund available with an ETF wrapper. Thanks, Ramin.
Hi can’t find VASTMGA on my Vanguard platform, only VIUK. What am I missing? Thanks
Hi @user-ms5tx9me4x try this: "What we offer" -> "Our full list of funds" -> "Building my own portfolio" -> select the "Money market" checkbox (there's only one fund they offer in two flavours). It's called the "Sterling Short-Term Money Market Fund". You can choose the income or accumulation versions. Or here's the link www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-a-gbp-accumulation/overview (not a recommendation, do your own research!) Thanks, Ramin.
Why a money market fund rather than a cash ISA?
@@mrtod13 better rates
@@TotalBuffoon I'm getting 4.9 from trading 212 but Sonia is about 4.7...
@@mrtod13 yh, they're good 👍 compared to most but obviously limited to 20k input and you would need to transfer in if you haven't got your ISA in there. I've started a small account with them to test out but am with HL at the moment.
When you have used up your ISA allowance, there are tax implications
@@mike-sw that's fair enough. No chance of that ever happening though 😂
I have a creeping suspicion that Ramin is colour blind...
Hi @MrMatisse22 I am indeed colour blind! Thanks, Ramin.
To the person who is reading this, don’t give up on your channel. Keep going, It’s going to be better 💯
Hi @SimplifiedInvesting4Everyone this is Ramin - thank you for that message! Thanks, Ramin.
@ thank you for your gesture Sir. I watch your content and you are one of the most respected TH-cam creators in the UK 🇬🇧
Feeling bullish now Trump’s in. U.S. economy looking set to boom and the ripple effect will be felt globally.
Hi @VoiceOfThe let's hope so. It's early days. Thanks, Ramin.
Spain is now in BRICS so anything is possible.
Really? What about tariffs? Too early to tell. If Trump imposes tariffs then the market will tank.
@@tancreddehauteville764
Remember your global equity fund is weighted approximately 60% U.S.A.
As long as you’re diversified, you have your asset allocation (with bonds) that you’re happy with for stability and stick to your long term plan, none of this matters.
The biggest risk to your future wealth is YOU and how you react emotionally and psychologically.