Why are investors buying money market funds? | Fidelity UK (2024)

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Money market funds made a bit of a comeback in 2023. In fact, two money market funds made it into the top ten best-selling ISA funds for 2023 on our platform. And three of the top 10 best-selling SIPP funds for the year were money market funds. But why are they so popular?

2023 financial headlines were dominated by inflation and interest rates. UK inflation dropped to 3.9% in November, but this figure still needs to almost halve to reach the Government-set 2% target. As a result, interest rates remained higher for longer last year. And savers looked to make the most of this 16-year high rate.1One way they were able to do this was by investing in a money market fund.

Read and bookmark our latest update on interest rates here.

If you’re not sure what a money market fund is, it’s a fund that invests in a portfolio of short-term cash deposits, money market instruments and high-quality bonds. And it’s designed to provide a high level of stability and liquidity while also delivering a modest investment return that has the potential to exceed short-term cash deposit in a bank or building society.

Here are three reasons money market funds are popular right now.

1. They’re a good place to park cash

Many customers like to park their ISA allowances as and when they can. Some do this at the start of the tax year. While some do it towards the end to ensure they don’t miss out on making use of their tax-efficient allowance - which for 2023/2024 is £20,000.

Often investors leave this sitting as cash in their Stocks and Shares ISA or SIPP until they decide what to do with it.

And while this does earn you interest (you can find out more about how we manage your money here and the interest we offer), money market funds could offer you more.

2. They offer steady returns

The point about money market funds is that they aim to deliver a return either over and above the Bank of England’s base rate or the Sterling Overnight Index Average (which is a benchmark for short-term lending between financial institutions). Of course, this isn’t guaranteed. But given the high interest rate, it does potentially offer an attractive return for risk-averse investors. Speaking of which…

3. They are low risk

This is one of the main reasons investors look to money market funds.If you look at the online fund information, you’ll see there’s a tab for risk and rating.

Why are investors buying money market funds? | Fidelity UK (1)

If you click on this, you’ll find that all three of the top-selling ISA money market funds denote a 1 risk rating. This low-risk rating, combined with today’s higher base rate, makes money market funds an attractive proposition for anyone who is concerned about market volatility or is saving for a short-term goal.

What are the top-selling ISA and SIPP money market funds?

It’s no surprise that for these reasons, money market funds were popular for both ISA and SIPP holders. If you click on these links you can read more about the top ten best-selling ISA funds for 2023 on our platform andtop 10 best-selling SIPP funds for the year. But here’s a quick list below of the money market funds which featured (with links to each fund in the table) and where they ranked.

The Fidelity Cash Fund is also one of Tom Stevenson’s four fund picks for 2024. Learn more about his fund picks here.

Top-selling money market funds for ISAs in 2023

Position it ranked (out of ten)

Name of fund

Number 3

Fidelity Cash Fund

Number 7

Royal London Short Term Money Market Fund

Source: Fidelity International. Gross ISA sales from 1 January to 31 December 2023 for Personal Investors only.

Top-selling money market funds for SIPPs in 2023

Position it ranked (out of ten)

Name of fund

Number 1

Fidelity Cash Fund

Number 3

Royal London Short Term Money Market Fund

Number 4


Source: Fidelity International. Gross SIPP sales from 1 January to 31 December 2023 for Personal Investors only.

Source:1. Bank of England - interest rates and Bank Rate

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Tax treatment depends on individual circ*mstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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Why are investors buying money market funds? | Fidelity UK (2024)


Why do investors prefer money market? ›

Money market funds appear attractive to investors as they come with no loads—no entry charges or exit charges. Many funds also provide investors with tax-advantaged gains by investing in municipal securities that are tax-exempt at the federal tax level (and in some instances at the state level, too).

Why invest in money market funds now? ›

You can protect your initial investment and possibly earn a decent return, depending on interest rates. Some offer tax advantages. By investing in municipal money market funds, you can avoid paying federal tax on your investment. Liquidity.

Should I keep money in a money market fund? ›

While money market funds aren't ideal for long-term investing due to their low returns and lack of capital appreciation, they offer a stable, secure investment option for individuals looking to invest for the short term.

Who buys money market funds? ›

For the most part, money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds.

What is the downside of a money market account? ›

Indirectly losing money, however, is a downside of money market accounts. Indirect loss can occur if the interest rates tied to the account fall, thus diminishing the initial return value of your account.

What's the catch with a money market account? ›

They may come with the ability to pay bills, write checks and make debit card purchases. Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.

What happens to money market funds when interest rates fall? ›

If interest rates increase, the value of a money market fund's investments generally declines, and vice versa.

Are money market funds safe in a recession? ›

Ultra-conservative investors and unsophisticated investors often stash their cash in money market funds. While these funds provide a high degree of safety, they should only be used for short-term investment. There's no need to avoid equity funds when the economy is slowing.

What are the risks of investing in money market funds? ›

There is a chance that money market returns may also fall below the inflation rate, providing negative real returns to investors (inflation risk). Interest rates can also go down further, reducing returns on money market investments.

How much money should you keep in a money market account? ›

If you insist on holding all your money in money market accounts, no one account should hold more than the FDIC-insured amount of $250,000. It is not uncommon to see families or estates with multiple bank accounts insuring their money as much as possible.

What is the safest type of money market fund? ›

U.S. government money market funds are typically regarded as the safest of the three, and within that category, those with a high concentration of Treasuries—with full government backing—would be exposed to a lower likelihood of default risk.

What is better than a money market account? ›

Money market accounts offer flexibility with check-writing and debit cards, savings accounts are more accessible and have lower fees, and CDs offer higher interest rates but with a commitment to keep your money locked away for a set period of time. To make the best choice, consider your financial goals and situation.

Has anyone ever lost money in a money market fund? ›

However, this only happens very rarely, but because money market funds are not FDIC-insured, meaning that money market funds can lose money.

Why do people buy money market funds? ›

Money market funds are useful for short-term goals, such as saving for a vacation, a wedding, or a down payment for a house. In these cases, it may be more important that your savings hold their value over the shorter time period. (2) Maintaining an emergency reserve.

How do you get money out of money market funds? ›

With a money market account, you'll typically get a checkbook and/or debit card. You can write checks against the account's balance or use the debit card to make purchases and withdraw money from ATMs.

How do investors use money market? ›

The money market involves the purchase and sale of large volumes of very short-term debt products, such as overnight reserves or commercial paper. An individual may invest in the money market by purchasing a money market mutual fund, buying a Treasury bill, or opening a money market account at a bank.

Why is money market better than savings? ›

A money market account is also a deposit account that offers higher interest compared to a traditional savings account, but it also includes some capabilities more commonly found in traditional checking accounts, such as access to your funds via debit card or check.

What is the money market best suited for? ›

Those targeting to save their excess funds should look for Money Market Funds. These are best suited for short-term investment, from a month to a year. These are stable and offer decent returns before being reinvested. Money Market Funds tend to attract investors interested in low-risk, regular, short-term income.

Why do people prefer to invest in financial markets rather than in banks? ›

Financial markets can give an opportunity for you to invest money in shares (also known as equities) to build up money for the future. Over a long period of time, this can often provide a better return than opening a savings account at your bank. But buying shares can be risky Opens in a new window.


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