Do the Americans have it that much better?

[elephanthunt11]

Hi all,

I was recently reading a thread on Reddit where the poster asked about Money Market funds.

Very long story short, if my understanding is correct - Vanguard US has the option of leaving remaining cash on account in a MMF at 4.5ish%

I'm looking for a placeholder for my cash allocation but I'd really rather not take it out of my ISA with HL. I see Atom bank (with a couple of others) offering quite acceptable rates on savings bonds. I want to know if there is some way I can access risk free returns like savings bonds within HL(?)

I know how much of a schoolboy question this sounds, go easy.

[Alaric]

s. I want to know if there is some way I can access risk free returns like savings bonds within HL(?)
.

HL have a product called "Active Savings".
https://www.hl.co.uk/investment-services/active-savings
This enables the holder to move money around different institutions without having to open a new account every time.

I doubt that will be available for cash inside an ISA, so you could be limited to what HL permit to be held in an ISA.

[gpadsa]

UK govt gilts, e.g., GB00BMGR2791 or money market fund, e.g., GB00B8XYYQ86 can be in an ISA, both around 3.5-4% yield. The former is risk free if holding to maturity (Jan 2024 for that ISIN); the MM fund is not risk free (are US MM funds risk free?). How quickly you might need to access the cash is important: gilts will fluctuate in price so not risk free until maturity, the money market fund looks less likely to leave you selling at a loss if you need to convert to cash. There are a few recent discussions of both gilts & money market funds in TLF

gpadsa

[Lootman]

are US MM funds risk free?

Yes and no.

US MM funds keep their price at $1. So you will always get back your original investment and your only return is interest.

That said the underlying short-term securities may bear credit risk. MMs that invest in government issues are generally perceived as risk-free. They typically have the lowest yields. Others may use corporate issues and have more risk, and more yield.

In the financial crisis there was fear that some MMs would "break the buck" and trade for less than $1. In some cases the fund manager added its own funds to maintain the $1 NAV per share, to protect their reputation.

[elephanthunt11]

s. I want to know if there is some way I can access risk free returns like savings bonds within HL(?)
.

HL have a product called "Active Savings".
https://www.hl.co.uk/investment-services/active-savings
This enables the holder to move money around different institutions without having to open a new account every time.

I doubt that will be available for cash inside an ISA, so you could be limited to what HL permit to be held in an ISA.

I've been aware of Active Savings for a while but was under a misapprehension as to what it actually was. After a bit of research after reading your post I realise this is exactly what I'm looking for and have now opened an Active Savings account. Thank you.

[mc2fool]

UK govt gilts, e.g., GB00BMGR2791 or money market fund, e.g., GB00B8XYYQ86 can be in an ISA, both around 3.5-4% yield. The former is risk free if holding to maturity (Jan 2024 for that ISIN)....

GB00BMGR2791, aka TN24 or more formally 0 1/8% Treasury Gilt 31-Jan-2024, is on an offer price of 97.03 and has a coupon of 0.125% so won't quite get you to 3.5%. It was on a bit over 4% during the Truss/Kwarteng debacle period when I snatched up some (along with TN25, 0 1/4% Treasury Gilt 31-Jan-2025), thanks to a heads up by another Lemon.

But it wasn't in an ISA (or SIPP) but in an unsheltered account 'cos, as gilts are completely free from capital gains tax and, while the income from them is subject to income tax (as interest), the vast majority of the return from such very low coupon gilts is from capital gain, if one is in the situation of paying tax on cash savings income it might well be worth considering swapping some of it to such low coupon gilts.

[tacpot12]

Americans, and few others, have the tax-free savings opportuities that ISAs allow savers in the UK. We have it considerably better than Americans in this respect.

[absolutezero]

Americans, and few others, have the tax-free savings opportuities that ISAs allow savers in the UK. We have it considerably better than Americans in this respect.

But many countires have it even better and suffer 0% capital gains tax, making ISAs unnecessary.

[Lootman]

Americans, and few others, have the tax-free savings opportuities that ISAs allow savers in the UK. We have it considerably better than Americans in this respect.

There are options for tax-free investing in the US.

There are municipal bonds, that can be free of federal, state and local taxes.

There are Roth IRAs and 401-K plans that work a lot like UK ISAs.

There are also US government savings bonds that can be tax-free, like some NS&I products, although I am not familiar with exactly how they work.

[forrado]

Where we in the UK have the edge over our counterparts in the US is when it comes to terms & conditions governing what the US Internal Revenue Service (IRS) refer to as Required Minimum Distributions (RMDs). Put simply, there is no obligation here in the UK on an individual - as in the US - to draw accumulated retirement benefits subject to age. As such was the case in the UK, when laws were in force governing arrangements of work-place and private personal pensions, that compelled the compulsory annuitisation of benefits by the age of 75.

The UK also has something of an advantage when it comes to the current maximum of £20,000 per tax year that can be contributed into an ISA. In the US the Roth IRA (the ISA equivalent) places limits on annual contributions that are far less generous than the UK allows.

[1nvest]

US better aids in retaining wealth. For instance whilst the UK withdrew index linked savings certificates (from new investors) the US maintained/expanded their equivalents. Inheritance tax is also more generous, north of $10 million before any Estate Tax (as they call it) falls due. Comfortable family are more self funding, less state dependent, pay for their own schooling, housing, healthcare etc. whilst still contributing into the system.

By attracting the 1% that pay a third of the UK income tax take to America, so that leaves the remainder in the UK having to pay 50% more in taxes, whilst reducing the taxes that Americans have to pay. Similar for businesses, the UK tends to sell off the good-un's to the US that later tends out to have been at bargain prices. Inherently in the UK we stamp down success, whilst US culture welcomes/promotes it.

[1nvest]

The UK also has something of an advantage when it comes to the current maximum of £20,000 per tax year that can be contributed into an ISA. In the US the Roth IRA (the ISA equivalent) places limits on annual contributions that are far less generous than the UK allows.

Backdoor Roth IRA !! https://www.investopedia.com/terms/b/ba ... th-ira.asp

[forrado]

US better aids in retaining wealth.

Agreed, but then again I'm not surprised, for there's a price that the UK taxpayer pays for the possibility of not being ruined by unexpected medical bills. A prospect that keeps a fair number of my baby boomer counterparts in the US awake at night who don't have the wherefore all to fully fund such outcomes. And, don't get me started on the growing phenomena of US homelessness, a cost - that unlike UK taxpayers provide via local county council funding - US taxpayers have never seen fit to shoulder.

As for a so-called Backdoor Roth IRA Conversion described by your provided link ...

What Is a Backdoor Roth IRA?
A backdoor Roth IRA is a strategy rather than an official type of individual retirement account. It is a technique used by high-income earners—who exceed Roth IRA income limits—to convert their traditional IRA to a Roth IRA.

It's a loophole - not a US citizen's right to operate an IRA - that principally benefits high-income earners (the privileged few in other words). Like all loopholes, it can be closed down with little warning if abused.