Why are SIPP interest rates important?
It is important to also maximise any cash sat in your SIPP that is not invested in the stock market – particularly if you might hold some cash for a while, for example if you are seeking low-risk options closer to retirement or are waiting for better investment opportunities.
Many people may not even realise that you can earn interest on uninvested cash in a SIPP, but a number of providers pay rates that beat savings account rates at high street banks.
However, there is a huge variety in the rates offered across different providers. Choosing a SIPP with a lower interest rate can have a detrimental impact on your long-term pension growth if you opt to hold cash long-term, while picking one with a higher rate can boost your savings.
Be aware that overall platform charges can also vary, and you should also take this into consideration.
What else should I consider?
If you are investing for the long-term, having your pension invested is still considered to be the best way to grow your retirement funds.
You might want to hold some money in your SIPP in cash if you are closer to retirement and the stock market is volatile, or if you are particularly risk-averse.
Many SIPPs’ cash interest rates are still not beating inflation, so if you have more than 5 years before you reach retirement, it could be better to remain invested.
Pros and Cons of Holding Cash in a SIPP
Pros:
- Capital preservation with minimal risk
- Liquidity for opportunistic investments
- Potential for earning interest on idle funds
Cons:
- Lower returns compared to invested assets
- Interest rates may not keep pace with inflation
- Potential fees reducing net returns
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