Money market funds (MMFs) are low-risk investments that hold very short-term debt (government bonds, bank deposits, corporate paper). They aim to maintain a stable value while generating returns slightly better than cash. With Bank Rate at 3.75% at the time of writing (October 2026), MMF yields sit close to that level, which is more than many easy-access savings accounts pay. But are they safe?
How Money Market Funds Work
MMFs pool investors' money and invest it in very short-duration, high-quality assets: UK government gilts, T-Bills, bank deposits, and investment-grade commercial paper maturing in days to months. They aim to maintain a stable £1 per unit value (constant NAV) or fluctuate minimally (variable NAV). Daily returns reflect overnight money market rates, so they closely track Bank Rate.
Returns vs Savings Accounts
Bank Rate was cut from 4.00% to 3.75% in December 2025 and has been held there since, so sterling MMF yields (before charges) are a little below or around that figure. Check the current yield on your platform's fund factsheet. The best easy-access savings accounts can pay similar rates, while many high-street accounts pay much less. MMFs offer daily dealing, with no notice period or fixed term. The trade-off is that they are not covered by FSCS deposit protection.
- Easy-access savings accounts: the best pay close to Bank Rate, many pay much less
- UK MMFs: yield tracks Bank Rate (3.75% at the time of writing), minus fund charges
- FSCS protection: savings accounts are covered up to £120,000 per person per authorised firm; MMFs are not covered if their value falls, though if your platform fails and your holdings are missing, FSCS investment protection of up to £85,000 may apply
- Access: easy access savings usually pay out the same or next working day; selling an MMF on a platform usually takes a few working days to settle
Risk: Is Your Money Safe?
MMFs are significantly safer than stock funds but carry more risk than FSCS-protected savings accounts. In theory, a MMF could 'break the buck' (fall below £1/unit) if underlying assets default or face a liquidity crisis. This happened rarely during the 2008 financial crisis in the US. UK-regulated MMFs invest in high-quality assets with very short maturities, making this extremely unlikely. However, their value is not covered by FSCS protection.
How do I invest in a UK money market fund?
Most UK investment platforms (Vanguard Investor, Fidelity, Hargreaves Lansdown) offer MMFs. They can be held in an ISA or general investment account. Check the OCF (ongoing charges figure) and the platform fee, because charges come straight off the yield.
Are money market fund returns taxable?
Yes. Income from MMFs is taxable as interest (not capital gains). Hold them in a Stocks and Shares ISA to make returns tax-free. The government is tightening the rules on cash-like holdings in Stocks and Shares ISAs from April 2027, so check how your platform treats MMFs before relying on this.
When to Use a Money Market Fund
MMFs make sense for: emergency funds for those with large savings (above the FSCS £120,000 limit per authorised firm), short-term parking of cash while deciding what to invest in, businesses holding working capital, and investors who've sold investments and are waiting to redeploy them. For most personal savers with under £120,000, FSCS-protected easy-access accounts with competitive rates are simpler and arguably safer.
- money market funds
- low risk investing
- cash investments
- investing UK
- OEIC