As one of Britain’s biggest SIPP operators increases its cash deposit rates, it’s time to check whether your SIPP operator is giving you a good deal on your cash
Although Some SIPP Cash Deposit Rates Have Increased, You'll See Below You Could Still Be Losing Out
SIPP Cash Deposit Rates Are On The Way Up
Following the Bank of England’s final decision of this Parliament to retain the interest rate at 0.5 per cent, one of the UK’s leading SIPP operators has decided to increase the rate it pays on cash deposit accounts.
In a letter to its SIPP holders, it said: "The change that we are making allows us to regain the ability to use a broad range of fixed-term deposits. Regaining this ability will allow us to improve the interest rates we can offer clients on cash held within the SIPP both now and in future. With interest rates so low, this change will not make a significant difference today. The main benefit should be seen when interest rates start to rise, commonly expected in the early part of next year."
This SIPP operator has doubled the cash deposit rate it pays on balances of £25,000 or more. It sounds like great news, and here are the new rates:
- The rate paid on a cash deposit up to £24,999.99 remains unchanged at 0.05 per cent.
- A cash deposit between £25,000 and £99,999.999 will now earn 0.1 per cent.
- A cash deposit of £100,000 and more will earn 0.2%.
Here’s how Citywire reported this cash deposit news.
If You Think These Cash Deposit Rates Are Good News, Think Again!
Here’s what’s really going on.
Inflation, as measured by the Consumer Prices Index has dropped to 0.3 per cent on 17 February 2015. So even though this SIPP operator has doubled some of its cash deposit rates, no matter how much you have deposited with them, the buying power of your money is being eroded in real terms every single day.
It seems that nothing changes. We wrote about cash deposit accounts nearly two years ago.
Right now, it’s possible to earn up to 1 per cent on your SIPP money for a deposit as low as £250.
That’s a staggering 20 times more interest than the big SIPP operator above for balances of up to £24,999!
If you want to tie your money up for a longer period, rates of up to 2.9 per cent are possible for a five year term.
Guaranteed Protection For Your Cash Deposit Accounts
If you want Government protection for your SIPP cash, limit your balance to £85,000 per institution. For that’s the limit of the Government’s Financial Services Compensation Scheme for cash deposit accounts. As far as we're aware, the balances in your SIPP cash deposit accounts are added to the balances in your personal cash deposit accounts with the same institution, when calculating your £85,000 protection limit.
Even With Cash Deposit Accounts It Pays To Read The Smallprint
Clearly it can be costly to rely on the spin of the big providers. For in this case, a doubling of some of its rates still leaves you losing money to inflation, leaves you dramatically out of pocket compared to other providers, and possibly leaves with less protection for your money too.
That’s not great news by any standards!
If you want to earn a higher interest rate on your SIPP cash deposit accounts, and you want total protection for your money, you need to select a full SIPP that gives you total flexibility. One where you can choose the institutions in which to place money in cash deposits.
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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