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Banks and building societies
Offshore bank

UK AUTHORISED UNIT TRUST OR OEIC

Cash Trust

(Also called Money Market, Reserve, Sterling Deposit, Maximum Income)

A fund where you pay in and withdraw like a Bank or Building Society Postal or Phone Account but technically you buy and sell units in a unit trust. The units only rise and fall slightly to reflect accumulating income and distributions, see Interest paid. Cash trusts generally only invest in bank and building society accounts but they are allowed to invest in a number of other types of short term investments including treasury bills, certificates of deposit and short dated Government Fixed Interest Stock .

Who can invest Anyone.

How worthwhile Compare with Bank and Building Society Postal or Phone Account. Unit Trust Cash Trust may be most worthwhile for small amounts, e.g. £500-£10,000 as the same interest rate is paid for all sizes of investment whereas building societies usually pay more for larger amounts. Only invest in trusts which have no initial charge and no spread between buying and selling prices.

Minimum Usually £1,000.

Maximum None.

Suitable Lump sums. You can only deposit by cheque not cash.

Money back Usually a few days.

Interest Variable. Called distribution. The before tax interest (after deduction of the yearly charge - see Fees to pay) is called the yield. This is similar to the before tax interest rate on building soclety accounts.

Interest paid Half yearly, quarterly or monthly depending on the trust; by cheque to you or direct to a bank account. Around half the trusts only have accumulation units which accumulate income; with others your income can automatically buy extra units or there is a choice of units.

Tax Tax is deducted from the distribution. Non-taxpayers can reclaim the tax credit from the Inland Revenue. Higher rate taxpayers pay extra; basic taxpayers and 20% taxpayers don't. The first distribution you receive after buying the units consists partly of interest and partly of an equalisation payment. This equalisation payment counts as a return of capital and is not taxable.

Fees to pay Initial charge nil to 2%. Sometimes reduced if you switch from another trust managed by the same unit trust group. Yearly ½% to 1% deducted from the interest.

Passbook None. Statement or certificate sent with each transaction. Report and distribution voucher usually half-yearly.

Children Under 18, units must be held in an adult's name but can be designated with a child's name or initials.

Risk None.

How to invest Phone the managers and ask what their current yield and minimum investment are. Avoid those with initial charges.

Where from About 35 unit trust groups.

Banks and Building societies
Offshore bank
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Last updated 20 June 2003