Investment platform Freetrade, known for letting users trade shares from their phone, has launched a collection of easy-access exchange traded funds (ETFs) that track the overnight interbank rate in the UK and US.
The Cash Investments ETFs seek to track or outperform overnight interbank interest rates and pass on any changes in the rate lenders are charging each other to investors. It also gives investors freedom to access their investments without a penalty.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Find out how the Freetrade ETF range works and how it compares to rates on the savings market.
How do the Freetrade ETFs work?
Unlike traditional investments like stocks and real estate where you usually get better returns by investing for longer, these EFTs can help short - medium terms investors earn good returns with relatively low risk.
The funds track the Sterling Overnight Index Average (SONIA) in the UK and the Fed fund rate in the US, with an aim to pass on interest rate changes to investors overnight, rather than relying on a fund manager to pick investments, which Freetrade says makes it low risk.
“These funds offer investors greater flexibility than savings accounts and returns that track overnight lending rates, not the whims of banks,” says Alex Campbell, head of communications at Freetrade.
The cash investments are also ISA and SIPP eligible, which means investors can protect their earnings from the tax man. Though it is worth noting that currently, you can only have one active stocks and shares ISA.
“Unlike savings accounts, these ETFs can be bought and sold during market opening hours, their returns track the latest benchmark rates set by central banks, and they can be held with cash already inside a tax wrapper,” Campbell adds.
How do the ETFs compare to the savings market?
The investments on offer are a mix of GBP and USD ETFs.
| Ticker | Benchmark index | Benchmark rate | Fund fee |
|---|---|---|---|
| $XFFE | Fed fund rate | 5.33% | 0.15% |
| £XSTR | SONIA | 5.19% | 0.15% |
| £CSH2 | SONIA | 5.19% | 0.07% |
| $SMTC | Fed fund rate | 5.33% | 0.09% |
| £FEDG | Fed fund rate | 5.33% | 0.10% |
The Fed Fund rate has a top expected rate of 5.33% which beats the UK base rate by 0.08% and it outperforms the 5.22% top easy access saver on the market right now by Metro Bank.
However, the fund manufacturer still takes a fund fee of up to 0.15% which you will need to factor in.
Fed fund rate ($SMTC) has the lowest fund fee out of all five ETFs on offer, at 0.09%, on a benchmark rate of 5.33%. In this case, the expected rate drops to 5.24%, which is still higher than what’s on offer in the easy access savings market.
-
How to pay in a chequeReceiving or writing a cheque has become much less common in recent years as instant bank transfers have grown in popularity. Amid widespread bank branch closures, we explain what to do if you get a cheque, and how you can pay one into your bank account.
-
Crypto assets of seven million UK investors at risk – how to keep yours safeCryptocurrency wallet rules make it hard to track down assets after someone has died, even if they leave a will saying who they would like to inherit them
-
Can Donald Trump fire Jay Powell – and what do his threats mean for investors?Donald Trump has been vocal in his criticism of Jerome "Jay" Powell, chairman of the Federal Reserve. What do his threats to fire him mean for markets and investors?
-
Go for value stocks to insure your portfolio against shocks, says James MontierInterview James Montier, at investment management group GMO, discusses value stocks and slow-burn Minsky moments with MoneyWeek.
-
Where do we go from here?Features A new series of interviews from MoneyWeek
-
As China reopens, why pick an income strategy?Advertisement Feature Yoojeong Oh, Investment Manager, abrdn Asian Income Fund Limited
-
Income in the USAAdvertisement Feature Fran Radano, manager on The North American Income Trust
-
The challenge of turbulent marketsAdvertisement Feature Today, ISA investors face one of the most challenging economic environments seen in recent years. However, good companies can still thrive, even in the toughest economic conditions. That’s why BlackRock’s fund managers focus on these businesses when they’re looking for investment opportunities.
-
What the return of the bond vigilantes means for investorsAnalysis The US Federal Reserve is dancing to the tune of the bond vigilantes, says Max King. Here’s what that means for stockmarket investors, the economy, and you.
-
Is gold cheap relative to equities?Analysis Dominic Frisby looks at the Dow-gold ratio and explains why gold is starting to appear inexpensive compared to equities.
