Money Market Fund as High-Yield Cash
Park short-term cash at the central-bank rate with daily liquidity.
Money Market Funds (MMFs) hold ultra-short-dated, ultra-safe debt — typically under 30 days average maturity — including 1-month gilts, commercial paper, and bank certificates of deposit. They track the Sterling Overnight Index Average (SONIA) closely, which itself tracks the Bank of England base rate. The price stays near £1 by design; you earn through coupon payments or steady price accretion.
The practical edge over a savings account: MMFs adjust to rate changes immediately, while banks delay passing on rate hikes (and pocket the spread). When the central bank raises rates, your MMF yield rises within days. They are also fully liquid — no fixed term, no penalty for early withdrawal — and can sit inside an ISA or SIPP, preserving tax wrapping.
Nakisa endorses them for everything from operating-account parking to ISA pound-cost averaging buffers. The risk caveat: in 2008 the Reserve Primary Fund 'broke the buck' due to commercial paper exposure to Lehman.
- MMFs track the central-bank short rate within days, not months.
- Average maturity under 30 days means almost no duration risk.
- The £1 price is a design feature, not a guarantee — a fund can 'break the buck.'
- Commercial-paper exposure is the real risk vector, not government bonds.
- Inside an ISA/SIPP, MMFs let you compound short-rate yield tax-free.
- Identify the cash needing a homeTax-bill savings, house deposit, ISA contributions awaiting investment, or business operating cash. Quantify how long the cash will sit.
- Pick a fund vehicleOptions include ERNS (LGIM short gilts ETF), CSH2 (Amundi accumulating), or Vanguard's UK Sterling Short-Term MMF. ETF wrappers trade on most platforms; OEIC versions on broker-specific ones.Pro tipAccumulating funds (e.g. CSH2) compound through price; distributing funds pay coupons — choose based on whether you want cash flow or compounding.
- Buy inside a tax wrapperISA or SIPP wrapping makes the yield tax-free. Outside a wrapper, coupons count as savings income.
- Monitor SONIA, not the fund itselfIf you know SONIA you know your approximate yield. Watch the BoE bank rate as the leading indicator.
- Sell when redeploying capitalMMFs are fully liquid. Sell on the platform when ready to deploy into stocks, a single bond, or pay the bill.WarningSettlement may take a few days — plan around the lag if the cash has a hard deadline.
Daniel parks lump-sum cash in an MMF inside the ISA, then drip-feeds into equities monthly. The cash earns ~5.6% while waiting.
Companies park VAT or corporation tax in an MMF for the months between quarter-end and payment, earning the short rate on idle cash.
The largest US MMF held Lehman commercial paper; when Lehman failed, the fund's NAV dropped below $1 — the first 'breaking the buck' in decades, triggering a redemption run.
Nakisa highlighted MMFs after fielding repeated questions from his community about whether earning instruments like ETF tickers ERNS or CSH2 are 'risky.' He clarified the distinction between the (real) 2008 commercial-paper risk and the (negligible) gilt-component risk, and made a video specifically rebutting the perception that MMFs are dangerous.