Money market funds explained

With continued market volatility amid geopolitical tensions, many investors are finding it harder to balance risk and return.

Some are turning to money market funds as a solution. The latest figures from the Investment Association show that investors pumped £1.4 billion into these funds during November 2025 alone, compared to just £522 million in November 2024.

At Continuum, we’re looking at why they’ve become so popular, explaining how they work and exploring whether they could have a place in your investment plans.

What are money market funds?

Imagine having a cash savings account that was actively managed by an expert to maximise your returns. That’s close to the aim of a money market fund, although there are some important differences.

Money market funds are investment vehicles designed to give savers a calm, steady place to park cash while earning a competitive return.

Money market funds are managed funds aiming to provide a decent return on cash and while keeping risk exposure to a minimum.

How do they work?

A money market fund pools investors’ cash and spreads it across a diversified basket of low-risk, short-dated assets. These include ultra-short-term, high-quality instruments such as Treasury bills, commercial paper and secure bank deposits, aiming to deliver stability, daily liquidity and a yield that typically tracks short-term interest rates.

Because these instruments mature quickly, often within weeks, the fund can continually refresh its holdings, adjusting to changing interest rates far faster than a traditional savings account.

Money market funds vs savings accounts

Money market funds offered an average return of 4.45% in 2025. This compares to the average easy access savings account in 2025 which paid 3.5%, according to Moneyfacts.

Unlike savings accounts, which sometimes come with restrictions on the amount of money you can pay in, money market funds don’t impose limits. You can put in as much as you feel is appropriate, and withdraw at short notice.

This means that you can almost use them as an easy access savings account with particularly attractive returns, with the important proviso that money market funds are low risk, not no risk. They are not covered by FSCS protection.

Plus, unlike a standard savings account, there are charges to factor in, though the fees are only around 0.1% and could still leave you better off, especially with the returns being tax-free via the ISA wrapper.

Why have they become popular?

The simple reason for the popularity of money market funds is their combination of convenience, access and the prospect of higher yields when you want to hold cash.

They’re not a replacement for long-term investing, but they’re an efficient tool for managing short-term cash with a professional, diversified structure.

How will money market funds be affected by changes to ISA regulations?

You can currently make the most of money market funds by including them in a stocks and shares ISA and avoiding the need to pay cash on the interest they earn you.

Unfortunately, money market funds are directly in the firing line of the 2027 ISA reforms.

The proposed 2027 ISA reforms

From April 2027, under-65s will only be able to shelter £12,000 in a Cash ISA. The remaining £8,000 of the £20,000 allowance must sit inside a Stocks & Shares ISA.

That creates an obvious loophole: savers could put £12k in a Cash ISA and then place the remaining £8k into money market funds inside a Stocks & Shares ISA, effectively keeping their entire allowance in low-risk, cash-like assets. HMRC has already signalled it intends to close that loophole.

What could this mean for investors?

HMRC is introducing tests to decide whether “cash-like” investments can stay inside Stocks & Shares ISAs. If they fail those tests, they may be blocked, tax-charged, or reclassified, reducing their usefulness for cautious savers.

The government has floated measures to impose a tax charge on cash held inside Stocks & Shares ISAs. If money market funds are deemed “cash-like,” they could fall under the same treatment.

So what could a money market fund do for you? 

Despite the restrictions coming in with the next tax year, money market funds could still have their uses if you want to remain in cash, rather than become an investor.

If you need to make a short-term cash deposit, they could be a rewarding solution, but you need to understand the tax implications, especially now they are changing.

To learn more about money market funds and whether they could be suitable for your needs, contact Continuum.

What are money market funds? | MoneyWeek

This article is intended for general guidance only and is based on the opinion of Continuum it does not constitute financial advice. Individual circumstances vary, and you should consider seeking advice from a regulated financial adviser before making any decisions about your Mortgage, Savings, Investments, or retirement planning.

Unlike UK-regulated savings accounts, money market funds are not backed by the Financial Services Compensation Scheme (FSCS)

The Financial Conduct Authority does not regulate deposit accounts.

Investors in ISAs do not pay any personal tax on income or gains. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.

The value of an investment can go down as well as up. When investing Capital is at risk.