Deciding where to hold cash isn’t just about safety – it’s about balancing liquidity, returns, and flexibility. While cash deposits remain a familiar choice for clients, money market funds are increasingly being used as a practical alternative. They offer many of the same features as cash deposits but can help advisers provide solutions that preserve capital, maintain liquidity, and potentially enhance returns.
Here's a handy guide designed for financial advisers to use when helping clients decide where to park short term cash.
Download the client friendly guide here or simply read below:
What's a money market fund?
A money market fund is a professionally managed, low risk investment vehicle that pools client funds to invest in high quality, short term debt from governments, banks, and large companies. Money market funds are designed to be stable and liquid, offering a cash-like alternative for short term investments while spreading risk across multiple instruments – making them suitable for advisers seeking low risk investments for cash.
How do returns compare in money market funds vs savings accounts?
Money market funds aim to grow capital through interest earned on underlying investments. Returns are typically higher than standard savings accounts or instant access deposits because the underlying assets are short dated – often less than a year – allowing them to respond quickly to changes in interest rates. This can be particularly beneficial when interest rates are rising.
By contrast, fixed-term deposits may offer more competitive rates but require locking up capital for 6–12 months or more. Cash accounts provide instant access but generally deliver lower interest.
While money market funds carry a small ongoing fund charge (typically 0.05–0.10%), this is usually offset by their higher return potential, giving advisers a tool to improve money market fund returns relative to standard cash solutions.
What about instant access and liquidity?
For clients needing immediate access to funds, cash deposits remain the most frictionless option. Instant access cash accounts cover short term or unexpected expenses without delay - such as your emergency reserves.
Money market funds also offer daily liquidity, though it may take 5-10 working days to access funds, depending on the investment platform. Fixed term cash deposits are less flexible and typically penalise early withdrawals.
The key takeaway is that cash provides maximum accessibility, while money market funds can offer clients better potential returns without tying funds into a fixed term deposit.
Does investing in money market funds mean my money is at risk?
Money market funds spread your money across a wide range of 50-300 high quality, short-term individual instruments, reducing exposure to any single issuer or asset. While this diversification lowers risk, there is always a chance that you could get back less than you invested.
Cash deposits, meanwhile, are concentrated in one institution but savers are protected against the failure of a UK financial firm by the Financial Services Compensation Scheme (FSCS). This provides a safety net of up to £120,000 per person, per institution if a bank or building society goes out of business.
There are many levels of separation and protection in place for regulated funds, but if a UK-based money market fund were to fail, the FSCS is likely to cover any shortfalls up to a limit of £85,000. It’s important to remember that money market funds are highly regulated, very diversified, and invest in highly secure instruments.
Some money market funds offered by Parmenion are based outside of the UK, in Ireland and Luxembourg. The FSCS doesn’t apply to these funds, but they are based in countries where similar investor protection schemes may be in place. Speak to your financial adviser for more information or see our Keeping your investments safe guide.
Advisers can use money market funds as part of a low risk investment for cash strategy, provided clients understand the risks involved. You can also take a look at our Parmenion Investment Team's approach to risk for more information.
Why choose a money market fund?
Money market funds can help advisers deliver solutions for clients looking for low-risk investments for cash:
- Potentially higher returns – helping client funds work harder than standard cash accounts.
- No fixed-term blocks – allows clients flexibility without locking funds away.
- Diversification to reduce risk – spreads investments across multiple high-quality instruments.
- Held inside tax wrappers for tax efficient returns – can be included in ISAs, SIPPs, or other tax-efficient accounts.
Money Market Funds vs Cash Deposits – the bottom line
Advisers should view money market funds vs savings accounts and money market funds vs cash as complementary rather than mutually exclusive.
- Cash deposits are ideal for client emergency reserves due to safety and immediate access.
- Money market funds offer potential for higher returns, convenience, and tax efficiency, though with minor investment risk.
A combination of the two allows advisers to manage short term liquidity while improving returns and providing flexibility.
Explore Sterling as part of a diversified investment strategy
For clients with short-term cash needs or a low risk appetite, Parmenion’s Sterling solution offers a highly liquid, low risk option. It complements other investment holdings, helping advisers create a thoughtful, multi-layered portfolio that balances flexibility, capital preservation, and potential growth.
Summary
This guide is for financial advisers and provides a framework to discuss cash management options with clients. For more detailed guidance on these solutions, get in touch with us.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.
Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
