Everything you need to know about the many options for holding cash in the IPM SIPP
Over the last 18 months or so, one of the main questions we have received from both advisers and clients has been: “What banks offer accounts for SIPPs, and where can we achieve higher interest rates?”
Between the end of 2021 and summer 2023, the Bank of England (BoE) gradually increased interest rates, from the historic lows when the bank rate dipped below 1% for the first time in 2009 to the level of 5.25% as of February 2024.
While these rate rises haven’t been great news for those with tracker mortgages or a fixed-rate deal that is due to expire, people who are risk-averse and wish to hold cash have finally seen the return of banks offering attractive rates of interest.
With the Financial Services Compensation Scheme (FSCS) limit being set at £85,000, those clients who wish to ensure that the monies were protected in the event of a bank failing would often split their SIPP monies among various institutions, with balances not exceeding this amount.
This makes sense, as typically the FSCS looks through the SIPP provider to the underlying beneficiary should a bank fail and cover the deposit, subject to the client not having personal monies that exceed £85,000 with the same institution. The FSCS website has more useful information about this.
Before opening an account, advisers and clients should carefully consider what is covered under the FSCS. Our understanding is that the limit covers each banking licence, so care should be given where multiple accounts are opened. IPM cannot provide any guidance on this subject.
Where the IPM SIPP can help
As a bespoke provider, we are used to seeing clients holding sums of cash as part of their SIPP investment strategy.
Our flat annual administration fee with no charges for additional bank accounts within the SIPP has historically been attractive for this – indeed, we once had a client with 12 different bank accounts in his SIPP with balances all under the FSCS limit!
Find out more about the investment flexibility the IPM SIPP offers in this useful explainer.
Given the frequency we are asked this question we thought we would look at the various options that are available to clients of IPM who hold cash in their SIPPs.
Trustee bank account
The trustee bank account is the default account where all transactions in and out of the SIPP must pass. This is for reconciliation purposes.
The IPM trustee bank account is with Metro Bank. We will establish this account as a matter of course when we set up the SIPP. Both advisers and clients can view the trustee bank account and their transactions using IPM online access.
The trustee bank account pays the same rate of interest across all balances. However, this amount can vary depending on the rate Metro pays to IPM. The interest payable on the trustee bank account is always available on our website.
We do not require clients to hold a minimum balance with this account, IPM does not charge to move money from the trustee bank account and we do not charge fees for setting up alternative accounts or investments to hold cash within the SIPP.
Alternative deposit accounts
Traditionally, when people have wanted to achieve a higher rate of interest on their cash, they have opened accounts with various banks.
The rates offered varied as did the terms of the accounts, from instant access accounts to six months’ notice, to two-year fixed terms.
IPM does not operate panels of accounts clients must select from. However, over the last few years, the number of banks offering direct SIPP deposit accounts has shrunk significantly.
When we asked one bank why this was, they pointed towards the level of administration required on these accounts and the fact that a lot of the deposit amounts were below the £85,000 FSCS limit. Consequently, it wasn’t financially viable for them to keep offering this.
We still see clients opening accounts with other banks. This site lists those banks that still offer SIPP-compatible products. IPM can open accounts with all these banks except Punjab National Bank (this is purely due to administrative reasons).
Cash management solutions
In the last couple of years, we have seen an increase in clients using cash management solutions within IPM SIPPs.
Like traditional investment platforms, these firms offer a platform solely for cash deposits. Instead of opening multiple accounts with various banks, clients can open one account with the cash management solution and then open various deposit accounts online, all in one place.
We are seeing banks who formerly offered accounts directly to SIPPs now offering products on services like this, as we understand these are less administratively burdensome for the banks to run.
From a SIPP perspective, once IPM has opened a cash management solution and an instruction has been given to move money from the trustee bank account, clients are then able to log on and choose which deposits they wish to place from the options available and the amount in that account.
If the account is fixed term, a notification is sent to the client to make them aware of this. They are also able to give notice on notice accounts directly through their login.
Last year, we asked Insignis (who operate a cash management platform) to give their view on interest rates on deposit accounts for SIPPs.
National Savings & Investments products
National Savings & Investment (NS&I) products are perennially popular with clients given that they can offer a greater level of protection. NS&I investments are covered up to £1 million as opposed to the maximum £85,000 compensation limit for banks under the FSCS.
It is important to note that not all NS&I products are available to SIPPs, so advisers should check with NS&I before making a recommendation for a SIPP.
Next steps…?
If you have a client who is looking at alternative options for their SIPP cash, feel free to get in touch to discuss how we can help.
For existing clients, we simply require an instruction and the paperwork to facilitate the investment. Providing we have everything required, we will take it from there.
Email info@ipm-pensions.co.uk or call 01438 747151.