Cash buffer

[UnclePhilip]

We are more-or-less retired, and our investment portfolio is 100% equities, no bonds. We also have about £50,000 in an instant access savings account, in order to provide about 3 years money to top up income in a bear market to avoid selling when equities are low (we sell units to provide income).

I am beginning to wonder if this £50,000 cash buffer could be made to provide better returns than our Saga at 4% while being easy to access for income drawings. It has been suggested that some sort of bond strategy may serve the purpose, but this is all rather remote from my knowledge or experience.

I'm wondering what folk here do in this situation?

[Kantwebefriends]

The first thing we'd do is spread the money across accounts at two different banks or building societies. So if one has, say, a software malfunction, or suffers a hacker attack, we could always get at some cash at the other one. Similarly we have current accounts at two different institutions. And we've spread our S&S ISAs around too.

We like Cash ISAs for cash; you could consider a "ladder" of them. For instance, you could open instant access Cash ISAs, one-year term ISAs, two-year term ISAs and even three-year term ISAs. Or you could get higher than 4% interest by also considering "notice accounts" e.g. at the moment 120-day and 180-day accounts offer some good rates.

The beauty of a fixed term Cash ISA (or a notice ISA) is that you can always withdraw money early knowing exactly what the penalty will be e.g. on a one-year ISA perhaps 90 days of interest. By contrast a fixed-term nonISA account can't be closed early, and investments in gilts give guaranteed returns only if you hold them to maturity.

Having most of our cash in Cash ISAs leaves us with our Savings Allowance free for other purposes e.g. the interest from regular saver accounts (another source of high interest rates e.g. 6.25% at Lloyds at the moment or 7% at First Direct).

Multiple accounts can be a faff, of course, but are worth considering.

[MrFoolish]

Vanguard offer so-called "money market" funds. These are easy to use and supposedly pretty safe. Couldn't tell you what the latest rates are though.

[Kantwebefriends]

Here's a detail. Some banks/building societies will let you open more than one Cash ISA in the same tax year under what's sometimes called a "portfolio" or ISA-splitting arrangement. You are still limited to £20k each for the year but you might put, say, £10k into instant access and £10k into a one-year fixed term account. Which providers offer this? I'm not up to date but I know that Nationwide sometimes has done but it doesn't include its one-year fixed term account at the moment. How about Yorkshire BS, Newcastle BS, ...?

Maybe you'd have to google around unless someone here can help?

Update: The Newcastle is a possibility.
https://www.newcastle.co.uk/savings/customisa

[daveh]

We are more-or-less retired, and our investment portfolio is 100% equities, no bonds. We also have about £50,000 in an instant access savings account, in order to provide about 3 years money to top up income in a bear market to avoid selling when equities are low (we sell units to provide income).

I am beginning to wonder if this £50,000 cash buffer could be made to provide better returns than our Saga at 4% while being easy to access for income drawings. It has been suggested that some sort of bond strategy may serve the purpose, but this is all rather remote from my knowledge or experience.

I'm wondering what folk here do in this situation?

I'm not going to be much help, but I was thinking of moving some of my cash into gilts. My problem is with the much improved interest rates that means I'm earning too much interest. I want to avoid having to pay tax or do a tax return. Therefore I need to keep my interest down below £1000. I'm maxed out on my ISA allowance for this year already. I could open a SIPP ( I already pay a fair amount in to my University DB and DC pensions, but I would still have space within my earnings to open a SIPP). However, my thought was to by some gilts such as TN25 which have a low coupon, and get most of their gains from the capital gain on maturity which is CGT free. I'm assuming the small coupon payments are taxed as part of the £1000 interest allowance. I'm going to ask some questions/have a look on the gilts and bonds board. I'd buy gilts with a range of maturities so I could either use the cash as they mature (if needed) and or transfer into my ISA.

[Kantwebefriends]

Update to my update: I may have accidentally traduced the Nationwide.

"How we’ve set up the Nationwide cash ISA
When you open one or more of our cash ISA products, they will each be part of a single portfolio cash ISA. This means that although you can pay money into your different products, you will only be paying into one portfolio cash ISA. We've set up our cash ISA in this way because it allows you to spread your annual ISA allowance across different products. For example, you could pay part of it into a fixed rate product and part into an instant access product. The only exceptions are Smart Junior ISA and Child Trust Fund Maturity ISA. These are stand alone cash ISAs which cannot be included in the portfolio cash ISA."