Savings account vs ultrashort duration bond ETF
Discussion
If you put £10k in a savings account, you'll get £10k plus interest. If you put £10k in a short-term bond fund, you might see your holding's value go up or you might see it go down. I'd suggest having a look at the historic performance of the fund you're interested in to get an idea of the volatility.
Buying single gilts direct is another option, because the return is known at the outset and certain (provided you hold the gilt to term, and provided the government can repay its debt).
Buying single gilts direct is another option, because the return is known at the outset and certain (provided you hold the gilt to term, and provided the government can repay its debt).
Savings are FSCS-protected, instant access, but usually lower rate. I'd also comsider money market funds, are very low risk, liquid daily, and often yield more, but have no FSCS cover. Ultrashort gilt ETFs are similar to MMFs, traded on the market with small price swings. For an emergency fund, savings make most sense; for extra cash, MMFs or gilts can give you a bit more yield.
MMFs in normal conditions are a decent place, yields are good and they offer short duration liquidity and near daily access.
They are however, shadow banks doing maturity transformation that under stress require bank support - otherwise they gate or break the buck (cannot return principal). If the WAM (weighted average maturity) or WAL (weighted average life) is greater than 1day - means you are at the mercy of market liquidity to unwind the underlying investments.
The yields are higher than bank deposits because a bank cannot offer the same strategy due to regulatory constraints.
That's not to say they are terrible places to put money, but they carry risks implied by the yields.
Depends on attitude to risk and loss, they make great investment propositions - but anything paying a return isn't riskless. Selecting a MMF requires thought, some are countercyclical; others highly bank correlated (regardless they sell on diversification).
They are however, shadow banks doing maturity transformation that under stress require bank support - otherwise they gate or break the buck (cannot return principal). If the WAM (weighted average maturity) or WAL (weighted average life) is greater than 1day - means you are at the mercy of market liquidity to unwind the underlying investments.
The yields are higher than bank deposits because a bank cannot offer the same strategy due to regulatory constraints.
That's not to say they are terrible places to put money, but they carry risks implied by the yields.
Depends on attitude to risk and loss, they make great investment propositions - but anything paying a return isn't riskless. Selecting a MMF requires thought, some are countercyclical; others highly bank correlated (regardless they sell on diversification).
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