More and more investers are now turning to Fixed Rate Bonds as a way to maximise the return from their investment while remaining in cash. This entails committing your funds to an account for a fixed period and in return gaining a higher level of interest. Generally investors are tied in for the full term of the bond or are heavily penalised for early withdrawals. Fixed Rate Bonds are now the most popular online search by savers at Moneysupermarket.com.
We have seen many clients who have Self Invested Personal Pensions (SIPPs) with the main bulk of their investment sitting in cash and earning abysmal interest. For example, the default bank account for an Alliance Trust SIPP is Cater Allen and this is currently offering 0% interest on the first £100,000; 0.375% on balances from £100,000 to £1m and on balances over £1m the account yields a rate of 0.453%. This means that on a SIPP cash balance of £500,000, an investor would earn £1,500 interest per annum. However, many other SIPP cash accounts will still offer 2-3%. Taking the same investor who moves his cash balance to one of these accounts, his £1,500 could become £15,000. Significant difference.
In one of my earlier posts where I talked about savings accounts, I mentioned the importance of reviewing what you have and if necessary find a better alternative. This is the same when looking at the underlying investments in your pension. I have talked to many clients this week who just did not realise the poor interest that was being paid on their default SIPP account and that they COULD increase their return by merely moving their cash. This is an example of one of the simple ways to help boost your portfolio.
Jacqueline Thornton CertPFS, Certs CII (MP& ER)
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