The highest-yielding money market funds to park your cash in

In the UK, the Bank of England base rate is now 3.75%. Interest rates are falling although inflation is proving somewhat sticky. 

Interest rates influence bond yields, as well as the returns from easy-access and fixed-term savings accounts.

• Invest with ii: Money Markets| Bond Yields| Tax Rules for Bonds & Gilts

Investors have a number of options. While they could buy UK government bonds (gilts), with 10-year gilts yielding 4.55%, they could also stray into the corporate bond market, where yields are even higher. However, bear in mind that bond prices can be volatile, and investors could be hit with capital losses even if the income is stable.

Savings accounts are another option, but yields tend to lag bond market equivalents. Moreover, unless the money’s inside a cash ISA, where returns are lower, savers may have to pay tax on their returns.

Basic-rate taxpayers (up to £50,270 annual income) get a £1,000 tax-free savings allowance, while higher-rate taxpayers (up to £125,140 annual income) get £500 and additional rate taxpayers (earning more than £125,140) get nothing. Any savings interest above the thresholds is taxed at income tax rates.

Money market funds

Money market funds are a viable in-between option, offering the income similar to gilts maturing soon, but without the complexity, while also mitigating the risk of bond price fluctuations. They can be held inside ISAs and SIPPs.

They own a diversified basket of safe bonds that are due to mature soon, normally within just a couple of months, meaning that investors can earn an income on their cash with minimal risk. These funds can also put money into bank deposit accounts and take advantage of other “money market” instruments offered by financial institutions. 

Returns, although never guaranteed, are typically in line with the Bank of England base rate. There’s typically a little bit of a lag before the fund yield rises or falls in response to interest rate changes.

In a nutshell, money market funds are designed to be low-risk, straightforward products that behave in a cash-like manner. Investors often use them to park cash balances for a short period while deciding where to invest, or to guard against periods of stock market volatility.

• Tips and tricks on how to generate a sustainable monthly income
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Fund industry trade body the Investment Association (IA) categorises money market funds into two buckets: short-term and standard-term funds.

Short-term funds are lower risk. Fund managers try to ensure the highest possible level of safety by keeping very short duration bonds and high-quality bonds in the portfolio.

Standard-term money market funds generally deliver slightly higher returns by owning bonds that have slightly longer maturity dates. There are also less stringent liquidity requirements. 

The short-term money market funds on the ii platform, as of the latest data available to 31 December 2025, include Royal London Short Term Money Market (3.91% yield); L&G Cash Trust (3.7%); Fidelity Cash (3.97%); BlackRock Cash (3.86%), and Vanguard Sterling Short Term Money Market (4.15%). A fund’s fees will eat into the yield.

Investors usually have a choice between an accumulation (acc) or income (inc) version of a fund, which determines whether income is automatically reinvested or paid out as cash. 

The Royal London Short Term Money Market fund is one of interactive investor’s Investment Pathway options for investing in drawdown when accessing all or part of a pension. The Royal London option is for those planning to take out all their money within the next five years.

Source: Latest yield data taken from each fund provider as of 31 December 2025. *As of 12 January 2026. Past performance is not a guide to future performance.

The standard money market funds on the ii platform include: Premier Miton UK Money Market (3.91% yield); Invesco Money (UK) No Trail (3.63%) and abrdn Sterling Money Market (3.97%).

Source: FE Analytics/latest data published as of 31 December 2025. *One-day yield figure sourced on 29 January 2026. Past performance is not a guide to future performance.

Money market fund yields are falling

Money market funds yielded over 5% when UK interest rates peaked at 5.25%.

However, more recently, money market funds have proved to be a solid allocation for cautious investors, or for those looking to park cash for a short time. In 2025, money market funds returned 4%-plus in sterling terms, with negligible volatility.

But interest rate cuts mean the amount of income such funds can generate is declining. With UK interest rates standing at 3.75%, and the expectation of one or two cuts in 2026, this will quickly feed through into lower future returns for these funds. However, at present, investors can still procure inflation-beating income, with the latest reading coming in at 3.4%.

In theory, lower rates could lead some investors to take on greater risk elsewhere in pursuit of potentially higher returns.

• Investment outlook: expert opinion, analysis and ideas
• Bond Watch: four funds for different types of investors

Bond yield: the key terms

There are three key terms that bond investors need to get their heads around: yield to maturity (also known as the running, or redemption yield), historic (or annualised) yield, and distribution yield.

Assuming all portfolio coupon payments (the level of interest promised) are made, and the principals on bonds (amount lent) are returned, the yield to maturity of a portfolio is the total annual return of a fund if all bonds are held to maturity. This assumes no portfolio changes. It’s a measure that bond fund managers use to assess what their portfolio is forecast to return, including when they get their capital back when a bond matures.

In reality, these figures change as the fund manager is constantly selling and buying bonds, but they are a helpful snapshot of return potential and income distributions.

 Advantages of a money market fund

• Very low risk, with the portfolio likely to at least hold its value and also pay out a modest income
• Diversified, meaning investors are not exposed to a single bond failing and can withdraw their money easily
• Can be held in a tax-friendly wrapper, such as an ISA or SIPP.

Disadvantages of a money market fund

• Investments may fall in value, unlike savings accounts
• Not suitable for growing savings over the long term as inflation will eat into returns
• Sensitive to interest rate fluctuations, with lower rates leading to lower yields. Yields rise when interest rates rise
• The Bank of England warns that in times of market panic and a rush to cash, there may be liquidity issues in money market funds.

This article was originally published on 30 October 2023 and last updated on 30 January 2026.