All savings in money market funds

jake_jones99

I currently have a large chunk of my savings in a money market fund tracking the BoE rate. To not worry anymore about banks' generosity on interest rates, I'm considering to move all my savings in that fund. The reason I've been reluctant so far is the bank account has FSCS protection, whilst the fund doesn't. However, the fund has many certificates of deposit which may be insured separately. It's very difficult to communicate with that fund to figure it out. 

What are your thoughts on this, are there any real risks in putting all your savings in a MM fund? (apart from that the BoE could drop the rate, which I'd keep an eye on anyway).

Thanks!

eskbanker

MMFs aren't a homogenous pool of identical or even similar products, so worth evaluating how reliable yours is, as discussed at https://forums.moneysavingexpert.com/discussion/6504842/is-there-any-meaningful-difference-between-mmfs

LHW99

You might find this thread of interest

https://forums.moneysavingexpert.com/discussion/6488180/money-market-funds-bubble?utm_source=community-search&utm_medium=organic-search&utm_term=money+market

There are other threads here that discuss money market funds, if you use the search facility (some are quite old though). I think you have to remember that "Money Market Funds" (general) are different to "Short Term Money Market Funds", and it probably depends on what interest rate you get versus keeping cash in the investment account versus a ladder of fixed rate savings.

mark_cycling00

 last 12months:

Easy access savings with £85,000 protection= 5%
Unprotected, at risk of panic selling mmt = 5.2%
FTSE world etf, unprotected= 16% 

The mmt doesn't look that good does it.

I'm guessing that like me, you don't have a fantastic record of clever investment decisions.

I just copy what clever people do now even if its outside of my comfort zone.

Right now I see lots of (a certain type of investor) piling all their savings onto mmts and it really worries me. I don't know why but it does.

It also sounds like you're making this decision based on a hypothetical scenario where all 350 UK banks decide to offer rubbish rates in some form of cartel.

Hopefully a few of the clever people on this forum will give you good advice on mmts.

wmb194

jake_jones99 said:

I currently have a large chunk of my savings in a money market fund tracking the BoE rate. To not worry anymore about banks' generosity on interest rates, I'm considering to move all my savings in that fund. The reason I've been reluctant so far is the bank account has FSCS protection, whilst the fund doesn't. However, the fund has many certificates of deposit which may be insured separately. It's very difficult to communicate with that fund to figure it out. 

What are your thoughts on this, are there any real risks in putting all your savings in a MM fund? (apart from that the BoE could drop the rate, which I'd keep an eye on anyway).

Thanks!

Which fund?

Of you want something 100% safe for short term money Freetrade now offers access to one month Treasury bills, though note your money's locked for one month as there's no secondary market for them. The current annualised yield on these is c.5.1%.

https://freetrade.io/treasury

GeoffTF

Here is an article, written when money market funds paid much more than the highest paying bank accounts:

https://monevator.com/money-market-funds/

Nowadays, money market funds are less attractive. The same risk, but with much less extra reward, if any.

dunstonh

I currently have a large chunk of my savings in a money market fund tracking the BoE rate.

Which money market style?  Short term only or all versions?

 The reason I've been reluctant so far is the bank account has FSCS protection, whilst the fund doesn't. 

Which suggests it is an ETF rather than an OEIC.  Although in reality FSCS protection doesn't matter.

What are your thoughts on this, are there any real risks in putting all your savings in a MM fund?

Yes. Liquidity being a key on when using MM rather than STMM.

GeoffTF

dunstonh said:

 The reason I've been reluctant so far is the bank account has FSCS protection, whilst the fund doesn't. 

Which suggests it is an ETF rather than an OEIC.  Although in reality FSCS protection doesn't matter.

What are your thoughts on this, are there any real risks in putting all your savings in a MM fund?

Yes. Liquidity being a key on when using MM rather than STMM.

With regard to FSCS, the issue is that if you deposit your money in the bank and the bank has too many defaults and goes bust, your deposit is protected by the FSCS. If you invest your money in a money market fund, and it faces defaults, you take the loss. There is no FSCS compensation for that.

Here is the Bank of England and FCA's review of the resilience of money market funds (there are several risk classifications):

https://www.fca.org.uk/publication/discussion/dp22-1.pdf

Albermarle

Easy access savings with £85,000 protection= 5%
Unprotected, at risk of panic selling mmt = 5.2%
FTSE world etf, unprotected= 16% 
The mmt doesn't look that good does it.

Although for many their money will be in a pension or S&S ISA. The rates in the cash accounts here are more like 3/ 3.5% . so a STMM paying 5.2% looks more attractive.

For non taxed wrapped money, then you are right the difference is marginal for the small extra risk.

GeoffTF

Albermarle said:

Easy access savings with £85,000 protection= 5%
Unprotected, at risk of panic selling mmt = 5.2%
FTSE world etf, unprotected= 16% 
The mmt doesn't look that good does it.

Although for many their money will be in a pension or S&S ISA. The rates in the cash accounts here are more like 3/ 3.5% . so a STMM paying 5.2% looks more attractive.

For non taxed wrapped money, then you are right the difference is marginal for the small extra risk.

You can buy short dated gilt with redemption yields just under 5%, guaranteed by the government. Sonia is currently 5.19%, and there will be costs to take off that. There are also many who would argue that cash has not been a good long term investment, and you would be better off buying equities and/or bonds.

Albermarle

There are also many who would argue that cash has not been a good long term investment, and you would be better off buying equities and/or bonds.

I would not disagree with what you say.

I was more just comparing some of the options if you did want to hold cash.