SIPPs: Where now for SIPP deposit accounts?


Crumpled question marks heapPeople using deposit accounts in their Self-Invested Personal Pension (SIPP) have had it tough for a number of years.

Interest rates, which were already at record low levels following the financial crisis, fell even further when the Funding for Lending scheme was introduced, some banks and building societies have withdrawn their accounts and for much of the last few years inflation has been higher than interest rates.

But SIPP deposit account savers are nothing if not a patient bunch. In our experience most have shunned other forms of investing, for example stocks and shares, and persevered with deposit accounts, at the same time keeping their fingers crossed that rates will rise.

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So, will 2014 be the year when the patience of SIPP savers is finally rewarded? Will rates finally start to rise?

Withdrawal of Funding for Lending

Whilst it seems unlikely the Bank of England will push up interest rates this year, in a rare piece of good news for savers, it was announced late last year that from January 2014, the Funding for Lending scheme would no longer be available for residential mortgages.

Funding for Lending provided banks and building societies with access to cheap finance, which meant they needed to raise less from savers. The withdrawal of the scheme is good news for SIPP cash savers on two fronts.

Firstly, as an avenue of funding has closed, savers will become more important again to banks and building societies. This should mean interest rates rise. It won’t happen overnight, but during the course of 2014 we will hopefully see a reverse of the rate cuts we saw when the scheme was introduced in August 2012.

Secondly, we’re hopeful that we’ll see more banks and building societies entering the SIPP deposit account market, as they look to replace the ready source of finance which Funding for Lending offered.

Choice is something distinctly lacking for SIPP savers. More competition would be welcomed by savers, who naturally want to split their funds between multiple institutions to maximise the security offered by the Financial Services Compensation Scheme (FSCS).

Who knows, additional competition might also start to push up rates too.

Whilst we are quietly hopeful rates may start to rise in 2014 and we that we’ll see some new entrants to the market, a significant increase in the rate of inflation would quickly wipe out any of these gains.

So where is inflation headed?

In December the Consumer Prices Index (CPI) hit 2.00%, the first time it has been at the Bank of England’s target for over four years.

Some experts are predicting the rate will start to rise again early in 2014 as the price hikes from the energy companies are included in the calculation. However, others are predicting little change; Goldman Sachs has forecast inflation will remain at 2% for 2014, whilst Pricewaterhousecoopers suggests inflation will sit at 2.3% in 2014, falling to 2.10% in 2015.

A real return from cash?

So, if inflation sits between the Bank’s 2% target and the higher of the two projections, at 2.3%, which accounts currently provide a ‘real return’?

Assuming only accounts which benefit from the FSCS are considered, a SIPP cash saver could just about keep up with inflation by tying their money up for one year with the Bank of Baroda or the Punjab National Bank, who both offer accounts paying 2.00% gross per year.

A one year fixed rate also provides some much needed flexibility to move cash to an alternative account in a years’ time if rates rise.

Savers looking for a hedge against rising inflation will need to look at longer term fixed rates, but to do so will mean sacrificing flexibility if as expected interest rates rise.

A list of SIPP deposit accounts can be found by clicking here.

We’re here to help

If you have a SIPP and are confused about your Cash options, we’re here to help.

Call one of our team of Independent Financial Advisers in Nottingham today on 0115 933 8433, alternatively enquire online or email