Money market funds for business cash: an investment alternative to bank deposits

Money market funds are investment funds designed to hold short-term, high-quality money-market assets and provide liquidity. Large companies and institutional investors use them as an alternative or complement to bank deposits, but an MMF is an investment rather than a deposit and should not be described as FSCS-protected cash.

MMFs are widely used for short-term cash management

HM Treasury's May 2026 reform paper says money market funds play an important role in cash management for asset managers, insurers, pension funds, large corporates and local authorities.

They can provide diversified exposure to short-term instruments rather than leaving all surplus cash with one bank.

A fund share is not the same as a bank deposit

Money invested in an MMF buys units or shares in a regulated investment fund. The company is exposed to the fund portfolio and the fund structure rather than holding an ordinary deposit claim on a bank.

Do not apply the £120,000 FSCS deposit-protection limit to MMF units as if they were savings-account balances. The protection framework is different.

Understand dealing cut-offs and settlement

Short-term MMFs are designed for liquidity, but redemption still follows fund dealing and settlement rules. Treasury should know the cut-off for same-day or next-day access and avoid treating the fund as identical to an instant bank account.

Keep enough bank cash for immediate obligations before investing surplus.

Low risk is not zero risk

MMFs invest in high-quality short-term instruments and are subject to diversification and liquidity rules, but asset values can still move and market stress can create pressure.

Review fund type, credit quality, weighted maturity, liquidity and concentration. Treasury policy should specify which funds and currencies are permitted.

The UK announced MMF regulatory reforms in May 2026

HM Treasury and the FCA announced plans in May 2026 to strengthen UK MMF resilience after periods of market stress. Businesses using MMFs should follow the implementation timetable and current fund disclosures.

Do not rely on old product assumptions if fund liquidity tools or classifications change under the reform programme.

Reconcile fund purchases, redemptions and yield separately from bank interest

Record investment purchases and redemptions according to the accounting treatment and keep yield or value movements separately identifiable.

At month-end, reconcile units held and valuation to the fund statement. The bank account shows only cash moving into or out of the fund, not the full treasury asset position.

Worked example: a company holds £10 million of surplus cash for six months before an acquisition. Instead of leaving the whole amount with one bank, treasury can allocate part to approved MMFs while retaining several million in operating deposits. The decision should compare yield, diversification, redemption timing and counterparty risk rather than treat the fund as a higher-interest current account.

Review the fund's prospectus, dealing cut-off and liquidity features before first investment. The treasury team should know what happens during stressed markets and whether fees or liquidity management tools can affect redemption. The 2026 UK reform programme makes current fund documentation especially important.

Use board-approved investment limits by fund and manager. Diversification only works if the company does not move every surplus pound into one MMF simply because it has the best headline yield.

Set a liquidity hierarchy: operating bank cash for same-day needs, MMFs for short-term surplus and longer instruments only for genuinely longer-dated cash. That prevents treasury from treating the highest available yield as the only decision criterion.

Review the fund's currency carefully. A sterling company investing surplus pounds in a dollar MMF introduces FX risk that can overwhelm a small yield advantage. Use foreign-currency funds mainly where the business has matching foreign obligations or a deliberate currency policy.

Keep authorised signatories and redemption permissions controlled. MMFs can be liquid, which makes them valuable treasury assets but also means a compromised investment account can move significant money quickly. Apply the same user-access review used for bank accounts.

Compare same-day and next-day redemption cut-offs with the company's payment timetable. If a fund's same-day cut-off is 10am and tax is due at 3pm, treasury needs to know whether redemption instructions can still produce cleared bank cash in time.

Keep credit-rating and fund-policy changes on the watchlist. If a fund changes strategy, manager or permitted assets, reassess whether it still fits the board-approved treasury policy instead of relying on the original purchase decision indefinitely.

For daily liquidity reporting, show MMF value separately from bank deposits even if both are categorised as cash equivalents in some accounting contexts. Management should know which balances require a redemption instruction before they can fund a payment.