Sunday 02 Jul 2023

Money Market Fund

Where I keep my short-term cash

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I have been using the Vanguard Money Market Fund to store my emergency and short-term cash. To keep my finances as simple as possible, I prefer to keep all funds within the same broker, instead if chasing interest rates and opening/closing many saving accounts.

I want a solid strategy to keep cash and feel the money market fund is the best vehicle to store short-term funds. For example, I keep money for potential car repairs, house repairs and emergency funds. I keep track of each pot by using a spreadsheet.

An advantage is that I will always get the best short-term interest rates. At time of writing, the money market funds is 12% of my wealth, so do not need amazing returns – that’s the job of my index funds.

It costs 0.12% per year with no entry or exit charges. The return between June 2022 to June 2023 was 2.85% - I expect the return to increase due to recent Bank of England base rate increases.

A money market funds collects investors money and lends to the best credit-rated companies and banks, and also lend money to the UK government. This money is usually repayable in less than a year, but more often within a month or two.

However, funds invested are not protected by the finance compensation scheme; if there is a “run” on the fund (many investors wanting to take money out at the same time) the fund can halt withdraws, preventing you access to cash, to save the fund.

Vanguard Money Market Fund: