Money market funds in an ISA

[funduffer]

I have a question.

I want to save some cash regularly (monthly), but where the interest is tax free and I can withdraw money at any time.

I am considering more Premium Bonds, but I am looking alternatively at a cash fund. (I have also looked at regular savings cash ISA’s, but these are few and far between).

An example fund is this one at Fidelity:

https://www.fidelity.co.uk/factsheet-da ... -documents

My question is, can funds like these be held in an ISA, and if so, do they count as a cash ISA or a stocks and shares ISA?

Thanks for any insights.

FD

Moderator Message:
Edited to correct typo in thread title (chas49)

[Parky]

On the factsheet you linked to there is a statement "This fund can be held in an Investment ISA, SIPP and Investment Account".

[funduffer]

On the factsheet you linked to there is a statement "This fund can be held in an Investment ISA, SIPP and Investment Account".

Thank you, I missed that!

FD

[londoninvestor]

My question is, can funds like these be held in an ISA, and if so, do they count as a cash ISA or a stocks and shares ISA?

Thanks for any insights.

FD

FYI, you might find some outdated materials suggesting that you can't hold money market funds in a Stocks & Shares ISA.

That was true in the past, when the Cash ISA limit was smaller than the S&S ISA limit - the idea was to stop you gaming the system by using the larger S&S allowance to hold quasi-cash.

It's no longer the case since the unification of the ISA allowances in 2014/15.

[gpadsa]

could try
https://markets.ft.com/data/funds/tears ... XYYQ86:GBP

or
https://markets.ft.com/data/etfs/tearsh ... H2:LSE:GBX

read the KIID carefully, especially for the 2nd one, to make sure they are right for you

Need to factor in dealing costs for money market funds on both the way in and out; for premium bonds could calculate the dealing cost as the interest lost in the month that the saving is not entered in the draw

gpadsa

[londoninvestor]

for premium bonds could calculate the dealing cost as the interest lost in the month that the saving is not entered in the draw
gpadsa

The loss of interest this way on Premium Bonds can be minimised if you time your deposits and withdrawals for the end and start of the month.

For example, pay in on 31st October and withdraw on 1st December. You've had your money in there for a fraction over 1 month, and you participate in 1 draw (the December one).

It's indeed a waste of interest if you transact mid-month.

[gpadsa]

The loss of interest this way on Premium Bonds can be minimised if you time your deposits and withdrawals for the end and start of the month.

https://www.nsandi.com/files/asset/pdf/premium-bonds-brochure.pdf says

When your Premium Bonds will go into the draws
In most cases, you’ll need to hold them for a whole month before
they’re eligible for the prize draw. For example, if you buy Premium
Bonds any time in November, they’ll be in the draw in January.
If you buy your Premium Bonds by automatically reinvesting your prizes,
they’ll be in the draw the next month. For example, if you win in the
November draw, then your new numbers will be in the December draw.
Once a Premium Bond is eligible for draws, it will take part in each month’s
draw provided you still hold the Bond on the first day of the month.

gpadsa

[gpadsa]

left out the comment I meant to make: as many people get paid toward the end of the month they would be able to put some cash into PBs before the end of the month as londoninvestor suggests

gpadsa

[londoninvestor]

left out the comment I meant to make: as many people get paid toward the end of the month they would be able to put some cash into PBs before the end of the month as londoninvestor suggests

gpadsa

Right. And if you have money available mid-month, keep it temporarily in the best instant access account, then transfer to Premium Bonds on the last day of the month.

[Gerry557]

I know you said you wanted tax free but some regular saver/cash savers offer much better rates even after tax than ISA rates. Might not suit if you are a high rate tax payer.

[funduffer]

I know you said you wanted tax free but some regular saver/cash savers offer much better rates even after tax than ISA rates. Might not suit if you are a high rate tax payer.

That is my problem. After a decade since I retired, I now find myself sucked into higher rate tax because of the frozen allowance. So I am looking to keep my savings interest below £500, which is not quite as easy as it was now interest rates are so favourable!

Hence my interest in ISA alternatives - especially ones where I can make monthly deposits.

FD

[CliffEdge]

Sometimes this is what happens.

[gpadsa]

More of a DAK but continuing the ideas above about 'earn untaxed capital gains instead of taxed interest': why does HMRC tax both of gilt strip CG & interest when the normal unstripped gilts that lemon fools have been piling in to are CGT free (but interest is taxed)? are zero-coupon gilts ever issued? Not that anything in that sphere is likely to ever trouble a chancellor preparing pre-election budgetary announcements

cf https://www.lemonfool.co.uk/viewtopic.php?p=609259#p609259

gpadsa