Seeking comment: Are money market funds better than savings accounts?

If an easy-access account is paying more than 4% with FSCS protection, I would not move to a money market fund simply because 3.94% sounds sophisticated.

Money market funds have a place. They can be useful for investors temporarily parking cash on an investment platform, but the yield is variable, there are charges and the capital is not guaranteed in the same way as a bank deposit.

For genuine emergency savings or money needed soon, certainty matters.

There is also an important 2027 wrinkle: money market funds will be classed as “cash-like”, so under-65s will not simply be able to put the other £8,000 of their ISA allowance into a 100% money-market portfolio and call it investing.

Do not turn cash into an investment just because the Government reduced the Cash ISA allowance.

Cash has a job. Investments have a different one.

Money market funds are having their moment in the sun, but that doesn’t automatically make them a better home for your cash. If an easy-access account is paying north of 4% against a targeted money market yield of 3.94%, savers need a fairly good reason to complicate matters.
The Cash ISA also has one major advantage that shouldn’t be overlooked: the taxman doesn’t get a slice of the interest. Under-65s can still put £20,000 into a Cash ISA this tax year before the cash limit falls to £12,000 from April 2027. Interest earned within the ISA is tax-free and doesn’t count towards your Personal Savings Allowance, which can make the wrapper increasingly valuable to higher-rate taxpayers and those holding sizeable cash balances. With the allowance becoming less generous next year, using it while it’s available could prove valuable over the longer term.
Money market funds certainly have their place, but for emergency savings there’s a lot to be said for keeping boring money boring.

Money market funds suit wealthier clients with substantial cash balances, or those already using an investment platform. They aren’t covered by FSCS deposit protection, but many spread money across a wide range of counterparties and short term instruments. That reduces the risk of holding a large sum with a single bank, especially above the FSCS limit.

With competitive easy access accounts paying above 4%, many ordinary savers will have little reason to accept more risk for a potentially lower return. For them it may be worth prioritising their cash ISA allowance, particularly before the annual cash ISA limit for under 65s falls from £20k to £12k for new contributions from 6 April 2027.

Money market funds have a role in managing liquidity in larger portfolios, but for most savers they should complement, rather than replace, conventional savings.

Outside an ISA, there's nothing to choose between a money market fund and a savings account on tax. HMRC taxes what the fund pays you as interest, just as it taxes bank interest, and both use up the same tax-free savings allowance. So the case for a fund rests on rate, access and risk, and whether that suits you is an adviser's call, not mine. The risk I'd add is a tax one: with accumulation units, the interest is reinvested rather than paid out, but it's still taxed that year, and income you never saw is the easiest kind to forget to declare. On the ISA question, the wrapper matters more than the product. Tax on savings interest goes up by two percentage points from April 2027, the same month the cash ISA limit falls for under-65s. So yes, if your interest already runs past your allowance, use this year's ISA allowance first, whichever of the two you choose.