Dry Powder: where are the best places for holding Cash?

ee, I expect to find that when existing holdings mature the offer will be to roll over into the new terms except that possibly rollover for 3 years will be permitted.

I say this because I think that the present terms have been very attractive to those who were concerned (rightly so far) about inflation particularly if they were higher rate taxpayers.

I agree that they are not attractive for short term cash which might be needed for other purposes but they have a place in some portfolios depending on personal circumstances and I expect a big take up.

MH

Yes I noticed that as well EE. Not compelling despite my continued fears that high inflation/low interest rates will be with us for the forseeable future. Rather gutted personally as I never got in on the original 3yr and 5yr series....

Index-linked Savings Certificates Relaunched

http://www.nsandi.com/savings-index-linked-savings-certificates

Something to keep an eye out for is a return of the NS&I Linkers - the 3yr and 5yr RPI + savings that apparently are going to make a return very soon. Will definitely be buying some of those.

A bank account earning 4% interest isn't great if inflation is running at 5% or higher. So dare I mention precious metals? It's true that they don't have quite the same characteristics as cash and introduce a new range of risks and volatility but as a hedge against inflation surely it's worth putting a proportion of cash into gold and silver? And what about non-sterling accounts? With the risk of currency devaluation in many western countries it might be worth holding Australian dollars, Canadian dollars, Singapore dollars etc. It seems to me that it's riskier to hold it all in pounds than to spread it around.

N Rock 5 year bond now closed ...

db

First Direct are offering a regular saving account that pays 8%.

The snags are:
- the maximum you can put into the account is £300 per month
- you can only have one account per person
- after 12 months the account reverts to the standard rate of interest

The plus points are:
- a couple can have one each
- the customer service provided by FD is outstanding

The small maximum size of this account means it won;t change anybody's life, but it is still a good enough offer that it would be churlish not to take advantage - especially for those of us who are already FD customers.

Buzz, see my earlier post re building society PIBS. I hold mine in my isa, the dividends are paid gross. OK there may be some capital loss (or gain) if you cash in before maturity but this will almost certainly be offset by the 7% tax free interest. The code for Coventry is CVB and for Nationwide NABA. As I say, worth a look.
Cheers, BLB
for more info www.fixedincomeinvestments.org.uk

I'm currently in the process of moving all my equity assets into my ISA and SIPP, so I hold cash with my Broker (Hargreaves Lansdown) where it earns a pittance in interest.

However, I do hold the majority of my total assets as cash in a combination of:
Cash ISA.
I -2 year bonds
3 and 5 year RPI linked National savings (not currently available).

I've not looked at moving my cash recently, so no idea of the best place. I do however have avariation on the original question:

How would you hold cash in an ISA / SIPP, but keep it liquid and a low risk of capital loss and why?

I can think of the following:
Cash - almost nil interest with the broker.
High yield shares - risk of price drops.
Bonds - Risk of capital loss.

Regards

Buzzz

Ummm one could argue that the banks are the ones which have been had over by the borrowers lately but new fool them for lending on silly terms.

Less than 1% losses on 10% lending does sound attractive but again one us risking all the capital so one would expect much better than building soc returns that have UK gov guarantee.

loglorry

I certainly look upon Zopa as comparable with a high rate building society. On past form, which is all that we can really talk about, the default rates have been much less than 1% and this would be on the riskier categories of borrower - say C - where the average rates have been 10% or more. Zopa operates on the same basis as other commercial lending organisations, the difference being that their customers - either lenders or borrowors - are not ripped off like they are with either banks or building societies, leastwise in todays economic climate.

What is perhaps not 'well quantified' is the average level of future default if the going gets much tougher. As far as I am concerned this is the major risk. Over the last 5 years Zopa look very, very attractive for both savers and borrowers who have sought alternatives to banks/building societies. I was never seeking to make comparisons with stock market investments.

Hey log,

8% on Aviva bonds. Sounds interesting.Presumably they're fairly easy to buy through a regular broker. Only ask as have never purchased corp bonds despite working in that field for many years.

Ta

acol - what I mean is that you take the risk of default which is not very well quantified but you don't get the higher returns. For example who is more likely to default Aviva on its preference shares or some bundle of Zopa bonds? Hard to say I know but my money would be on Aviva servicing its debt and repaying and they will pay you about 8% if I recall and the income is tax free to lower rate tax holders.

The problem is that Zopa are trying to compare their offering with that of "risk free" or near risk free deposits in things like building societies. This is just not the case though there is a lot of risk in this style of lending and worse still it is very hard to quantify.

To be fair I haven't looked at it for a while but even a 1% default rate / year in a loan book starts to make a 6% return look a bit more pedestrian especially when income is taxed.

Log

Anyone looking immediately should consider Northern Rock 5 yr bond 4.3%. Weirdly you can get your money out with 180 day notice, no loss of interest, and you can give notice and then let it lapse.

nb For those who have stacks of the old gov backed N Rock bonds, this new one comes under the normal compensation scheme.

db

Instant access cash savings will get you up to about 2.9%pa - higher rates than that will generally be a fixed rate bond where you will have very limited (if any) withdrawal options during the bond period.

One thing I noticed is that the so called "money expert" comparison site often miss many of the rates on offer so dont rely on just one before making a choice.

I agree with Log that paying down the mortgage is often the best for most people (unless you are in a long term tracker taken out a couple of years ago) and if access to funds is required at the drop of a hat then an offset or flexible mortgage is best. Barclays (Woolwich) offer offset deals from 2.79%.

SW10 Chap - A company that lends to entrepreneurial Africans called MYC4....are you sure that C4 isnt the explosive type ! lol

I have some cash tucked away in building society PIBS e.g. Coventry BS and Nationwide. The average yield is around 7% (payable half yearly). You will need to buy them through your broker. Unlike corporate bonds, you get interest right up to the day you sell. Worth a look imho. Cheers.

loglory

Each one to his own. Zopa uses the same standardised credit ratings as other financial institutions, the same debt collecting agencies etc. The difference is that the lender takes on the risk directly and if an individual borrower defaults then the bad debt is suffered directly by the lender and not the bank. The business model depends upon the accuracy of the projected bad debt. Since ZOPA has been in existence the projected bad debt has been far less than estimated. I think that your assertion that 'the model is broken' is simply that - an assertion which you have not justified.

Time will tell, of course, and as I said in my earlier post, things could change if it gets really nasty out there. In the meantime I am happy to use Zopa as one of my methods of saving and as one of my investment tools.

Just came across this, similar concept to Zopa except it involves lending to businesses!

http://www.fundingcircle.com/

Am taking a peak but suspect, in similar fashion to Zopa, I'll be giving it a miss.

For those out there with a mortgage the best savings rates have probably go to be paying down the mortgage. I know this sounds obvious but many people seem to overlook this. If one wants to be able to draw the money back then consider an offset mortgage. RBS do one via the One Account at 3.75% but obviously if you offset it all you'll pay nothing. Obviously tax advatnages exist as you don't pay tax on the interest you are saving.

As for Zopa - I think it is barge pole territory. The model is broken really. There is no quantification of risk here. Other than the Zopa own ratings which mean nothing you have no idea what sort of risk you are taking out. Spreading it across borrowers does not mitigate the risk either which is obviously what they are trying to claim. Similar door stop lending type rates are very high in comparison. Unless you just want to do it as a charitable act this makes no sense to me whatsoever.

Log

Re Zopa

I joined Zopa about a year ago and can report favourably on the service offered. I loan money out to people in risk categories A*, A, B and to a lesser extent C. I choose a maximum term of 36 months and the interest plus proportion of capital is paid back more or less straight away. The rates available are continually changing and currently range between 6.9% and 10.8% on the categories that I use.

Over a period of a year I have not yet had any bad debt but clearly that could change in the future, My brother has used Zopa for nearly 2 years and he has a similar experience to mine. Aside from specifying the risk category of borrowers it is possible to limit the size of each loan down to a ridiculously low level. Admin charges are very low and thus far I have had a very positive experience with the way that Zopa operates.

Peer to Peer lending

http://uk.zopa.com/ZopaWeb/

Lend people money at 8.4% over 3 years. You can choose the type of customer to lend to.

One also has to take into account tax & potential losses from customer defaults. I understand one's money is spread over many customers so ineffect ones money is only partially lent to a customer with the balance lent to several other customers.

I have'nt tried this, but I know it has been around for a few years now. I would probably do it if I could get loan rates of 15%+ pa from the most credit worthy customers.

I would prefer for this company to spend more years establishing themselves in the business, improving their lending criteria with experience etc before I gave it any money.

Introduces a new level of (currency) risk that may not be appropriate, but 6.5% for one year term, in Australian dollars:

http://www.rabodirect.com.au/term-deposits/default.aspx

Just look here :

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

Everything you need to know.

Good thread idea.

I have a feeling I'll be looking for 2-3 good homes for blocks of funds that are fully safe (ie government insured), so I'll be very interested to see what people can find. Not interested in regular savings though - just a couple of good places to lock in for a year or so and another one with 30 days max notice.

The difficult question though is when will rates rise - because that determies the lock-in period. My feeling is that rates may be on the rise much sooner than some expect ....perhaps by mid-year? We may then start seeing some decent returns for savers as banks belatedly start competing for funds more seriously?

The other issue is whether there will be impacts from the Vickers' banking commission breaking up the big banks. The banking commission won't report finally until September - but again it might provide some welcome competition amongst borrowing banks if the present megabank oligopoly on deposits is broken up.

ee

If you hold a HSBC premier Banking acct you can get 9% on a regular saver (max 250 pounds per month). Think Barclays might do a similar 5% regular saver. as ever there are restrictions on eligibility.

Santander also do a 3.1% 1yr Fixed rate ( but you need to have a mortgage with them to qualify)

Nice thread idea though.

Bound to be some that we've missed that others might be looking at or have.