We aim to keep you investment stable, and the government-backed funds that Wise Interest invests in are designed for stability. Read on to learn more about rate changes.
What type of funds does Wise invest in?
The funds that we invest in are Constant Net Asset Value (CNAV) funds, so their value stays stable across different market environments. This means that even with fluctuations in interest rates, the value of your investment isn't affected.
What happens when interest rates go up?
If the rate increases, the interest generated by the fund will likely go up. This is because new government securities in the fund will offer higher returns.
What happens when interest rates go down?
If the rate decreases, the interest generated by the fund will likely go down. This is because new government securities will offer lower returns. But the value of your investment remains stable with the CNAV structure, which makes sure that the fund’s value doesn’t fluctuate because of market conditions.
You’ll continue to earn interest, just at a potentially lower rate. But your balance won't fluctuate with short-term market changes because of:
the short duration and high-quality of the investments, and
the amortised cost-accounting method
As a result, this provides you with a consistent and reliable return.
How does a CNAV fund keep its value stable?
It keeps its stability with short-term, high-quality investments and amortised cost accounting. Here's how it works.
Short-term, high-quality investments
The fund invests in short-term, high-quality government securities. These assets are less sensitive to market fluctuations because of their short duration and high credit quality.
Amortised cost accounting
Instead of reflecting the daily fluctuations in market prices (mark to market), a CNAV fund uses amortised cost accounting. This method values the securities in the fund based on their original cost adjusted for accrued interest, rather than their current market value. This approach smooths out short-term market volatility and provides stability to the value of the fund.
The combination of amortised cost accounting and the nature of these investments allows the fund to maintain a stable value.
By not marking to market, the CNAV fund avoids reflecting temporary market swings that might not affect the long-term value of the underlying assets. This approach ensures that your investment remains stable and predictable, which is particularly important for a product like Wise Interest, where the goal is to provide a safe and consistent return.