Obvious differences aside (i.e. i’d need to wait to sell and withdraw money) is there something that provides similar (nearly)guaranteed return?
That’s basically ultrashort (government) bonds funds - basically the most cash-like security there is and what those moneymarket funds are likely invested in behind the scenes.
Edit: ERNS is a corporate bond fund so does carry counterparty risk, to be really ‘cash like’ I’d expect all/vast majority of the holdings to be government bonds so ERNS is a bit of poor example.
ERNS would be an example in GBP
Unsurprisingly the coupon is currently very close to the saver account at 3.14% (-0.09% expense)
Where do you see that ERNS offers 3.14? In the app it only shows a dividend of 1.72%
It’s on the fact sheet linked (under portfolio characteristics)
I don’t know what the number in the app is but I guess it’s probably the trailing 12 months - which makes sense as rates have risen a lot in that time.
Do you mind explaining how it works? If I take a look at it monthly or yearly chart it doesn’t seem like it yielded much at all.
Unlike US ERNA for example.
ERNA is accumulating (ERNS is distributing) and it’s USD based so it will have appreciated in GBP terms due to the currency swings, also US bonds have slightly higher yields than UK.
In general for these the main thing to do is just look at the portfolio of bonds and the yields on them to give a current view of the return (the duration also needs to be sufficiently short for them to be truly cash-like but these are reasonably short).
The aim of these funds (much like a moneymarket fund / savings account) is to keep a rolling set of short duration bonds so they can basically pay out the current government rate (approximately) - no guarantees about that rate in the longer future, but also very low volatility.
Longer term fixed rate savings accounts are basically doing the exact same thing with longer-dated bonds, they can guarantee a rate for longer period as they use longer dated bonds and they don’t have to worry about the bond value falling in the short term because the customer is locked in.
I do wantder out of curiosity what would earn more. 18k worth of sticks and shares in 2 ISAs and on SIPP
Or a chase account.
I’m almost tempted to download the app and make an account with them just to see which wins.
My dividend income on my fteetrade ISA is over £250.
I think chase might be a decent financial ‘bit on the side’ when it comes to passive income.
If only chase offered cash ISAs
My money would be on the ISA/SIPP earning more, certainly over the longterm.
Every £100 you put into the SIPP will bag you £25 tax relief, can’t see how Chase can beat that?
Even after emergency fund, I think it’s generally prudent to have some money sitting uninvested in cash in case an interesting opportunity presents itself, so it needs to sit somewhere.
Prudent for you perhaps, but personally, I’m a "time in the market’ kind of investor, rather than a ‘timing the market’ investor.
Any cash I have which I intend to invest gets invested straight away, because if I didn’t, I’d probably end up being indecisive and dither about when to invest and probably end up not investing at all!
ERNS has a different profile to cash since these are ultrashort corporate bonds and government-like ones. So you would be taking credit risk if Nationwide (a top 5 holding) doesn’t pay its bondholders.
I’d say a closer match to a savings account is a short-term money market fund like Blackrock’s ticker “Cash” or Royal London’s MMF, but unfortunately, none of the popular MMFs is available on FreeTrade.
Other good options include very short government bonds, as Cameron pointed out.
Invesco (TIGB) 0-1 years US bonds, hedged to GBP, yields 4.76% at the time of writing, March 2023. Not bad! Also iShares IBTG, but this one is not on FT.
I’ve written about the above and some other cash options here.
Finally! Risk-free savings paying us something!
Btw I have nothing against ERNS, it has been smooth sailing and will likely continue to be. Yields 4.65% so very decent.
Tax deferral, not necessarily tax saving
You are correct, my mistake, sorry I had a load of different tabs open looking for an example so must have got confused and my wording was a bit ambiguous. I’ll update the comment to avoid misleading.
Thank you for this and the linked page, I’ve been looking for a way to stash cash at a reasonable risk/reward ratio.
Given the short duration of TIGB.L bonds, does this suggest it’s a reasonable place for 1-3 month cash?
No prob, happy to help. Currently, TIGB has a 6-month duration/maturity so probably better suited for such duration if you want to be more accurate.
The shorter a bond’s duration, the less volatile it is likely to be. For example, a bond with a one-year duration would only lose 1% in value if rates were to rise by 1%.
As always, take professional advice
Good to see these newly added options on FreeTrade!
BBM3: US 0-3 month treasury bonds
FEDG: US dollar cash ETF
USD unhedged though.