How do you pay investment fees if you have no cash on hand?
We’ve previously covered how much cash you should have in your portfolio, but how to do you manage the cash in your investment account? What happens if you owe fees and have no money, or if you want to buy and sell investments? We’ll answer some of the common questions asked.
What happens if I owe money and have no cash in my account?
There’s no minimum cash balance on your account, so you don’t have to have any money in cash. That said, each quarter you’ll be charged custody charges, which are the fees for having a platform. This money will come out of the available cash in your account. If you don’t have any cash, or don’t have enough cash in your account then some of your investments will be sold to pay these fees.
If the platform has to sell your investments it will sell some units of your largest holding, and you might face a higher than usual dealing fee for that transaction. This means that it’s best make sure you have enough cash in the account to meet these costs. As they are collected quarterly you should check before the end of the quarter whether you have a pot of cash available.
If you typically have more money in your Dealing Account than your ISA or SIPP you can elect for your charges to be taken from the dealing account instead, you’ll just need to contact your platform. This only applies to the custody charges and not the fees for buying and selling investments, which will need to come from the relevant account.
While it’s good to have some money in cash (and you aren’t charged a custody fee on this money) the cash won’t earn much interest, so you need to make sure you’re not just leaving money in cash for long periods of time unless that’s a strategic move you’ve planned for.
If I sell one fund and buy another, why does money come out of my cash account?
If you sell and buy an investment at the same time you will need sufficient cash in your account to fund the purchase, as there will be a time-lag before you receive the money from the sale.
Depending on the time of day you trade it can take two to three days to trade a fund, although selling ETFs, shares or investment trusts would be much quicker. You need to be conscious of this if you’re relying on the cash in your account to pay you an income or to pay for fees.
People who are in pension drawdown need to be particularly aware of this. They will need to have sufficient cash in their account to pay out their monthly withdrawal if they trade just before the date when this income is due to be paid out they could find some of their cash is used to buy the investment and they won’t have enough cash in their account to pay out their income.
A such, it would be wise to ensure you have enough cash in your account ahead of your drawdown payment date, and perhaps keep more than one month’s worth of income in cash if you know that you trade funds regularly.
Why have I got cash in my account that I can’t withdraw?
The amount marked as ‘available cash’ in your account is not always the amount you can withdraw. This figure will include transactions that have not yet cleared, whether that’s money that you’ve paid in or money that will be used for pending share or fund purchases.
When you pay money into an account it depends what method you use as to how quickly it will clear. If you use your debit card the money will be available immediately, but if you send a cheque it will take five working days to clear usually. So consider this when you’re thinking about how quickly you want to be able to use and invest that money.
If you want to withdraw money from your account it will take five working days to clear. If you need to access the money sooner than that you can get the payment sent by something called CHAPS – but this will cost extra, for AJ Bell YouInvest it’s £25 plus VAT.
Can I move cash between my different accounts?
You can move cash from your dealing account into you ISA, SIPP or Lifetime ISA, although you need to make sure you don’t exceed the account allowances on these accounts (£20,000 a year for your ISA, £4,000 a year for the LISA and £40,000 a year for most people in their pension).
You will only be able to move ‘cleared’ cash (see above) and will need to wait for any money in the dealing account to be cleared before you can move it.
It’s a bit trickier to do the reverse transfer, from your other accounts into your SIPP, ISA or LISA. Bear in mind that once the money is in your SIPP you won’t be able to access it until age 55 usually.
And with your Lifetime ISA you will pay an exit charge if you transfer the money out to one of your other accounts – the charge is 25% of your withdrawal.
You can more easily move the money from your ISA into your dealing account, but bear in mind that you won’t be able to transfer it back into the ISA in the same tax year if you’ve already met your £20,000 annual ISA limit.