Choosing the right deposit account for your SIPP can be a tricky and time consuming task. We produce what we believe is the most comprehensive table of ‘sippable’ deposit accounts and we have a wealth of experience in this area.
Having seen an increase in the number of enquiries recently for deposit accounts in SIPPs we thought we would put our experience and knowledge to good use with five tips for choosing the right deposit account for your SIPP.
1. Type of accounts
As with personal accounts there are a range of deposit accounts for SIPPs available, offering options from instant access through to notice accounts and fixed rate bonds.
When deciding which type of account is right for you it is vital that you consider your overall pension strategy. For example it would be inappropriate to invest your entire SIPP in a five year fixed rate bond, which offers no early access, if you are planning on retiring next year.
Decide on your pension strategy and then select accounts based on these decisions, it really is no different to organising your own personal savings accounts.
2. Interest rates
The interest rates on deposit accounts for SIPPs are generally comparable to those on personal accounts.
However there are fewer banks and building societies offering ‘sippable’ deposit accounts meaning those people wanting their SIPP to invest in a deposit account may find their options limited.
‘Sippable’ deposit accounts can also be hard to track down, which is where our best buy table comes into its own.
3. Getting the right SIPP
Not all SIPPs allow all ‘sippable’ deposit accounts.
Despite a SIPP generically having wider investment powers some SIPP providers limit the access to ‘sippable’ deposit accounts. For example the UK’s largest SIPP provider, Hargreaves Lansdown, does not routinely offer access to any ‘sippable’ deposit accounts, and they pay just 0.25% on cash balances in their SIPP of more than £50,000.
Hargreaves Lansdown are not alone in this, a number of other well known SIPP providers offer no access to any other deposit accounts other than the SIPP bank account, and even then they choose the provider.
Every SIPP has a ‘current account’ to help with day to day cash movements, these accounts are often a valuable revenue source for many SIPP providers as the provider of the SIPP bank account often pay a percentage of the balances to the SIPP provider. This is one reason why the mandated SIPP bank account often pays less than bank base rate when a quick glance at our best buy table shows that it is possible to get 2% for instant access SIPP deposit accounts.
Click the link to see which SIPP providers offer unrestricted access to all deposit accounts for SIPPs.
4. SIPP costs
Every SIPP has a different charging structure, some are extremely simple, others more complex, either way you should make sure you understand the charging structure of your SIPP and compare it to alternatives, to make sure that your SIPP is as cost effective as possible.
For example if you are planning to open multiple deposit accounts for your SIPP, including a number of short term accounts, a SIPP which charges you for opening and closing every account may work out more expensive that if you were to pay a flat fee. On the other hand if you are planning to open only one or two accounts you may be better paying for each transaction rather than a larger flat fee.
Our advisers are experienced in working out which is the most cost effective SIPP for your needs and would be happy to talk through your individual circumstances.
5. Which compensation scheme?
Many deposit accounts for SIPPs are offered by offshore banks, generally in the Isle of Man, Jersey, Guernsey and Dublin, they therefore do not fall under the UK Financial Services Compensation Scheme.
Before you open an account, make sure you are comfortable with the applicable compensation scheme comes under. Our best buy table for SIPP deposit accounts shows the applicable compensation scheme for each account and also gives details of how each scheme works.
Summary
Whatever your reason for investing in a deposit account for your SIPP following our tips and using our best buy tables will help you achieve a better result.
If you feel as though you need further help, guidance or advice our friendly team of independent advisers are on hand to help guide you through what can be a complex area. They can be contacted on 0115 933 8433 or by emailing info@investmentsense.co.uk
