What are money market ETFs and how can you invest in them?

What is a money market ETF?

A money market ETF is an exchange-traded fund that invests in very short-term, high-quality debt instruments — typically maturing in less than one year. Its objective is capital preservation while generating a return broadly in line with overnight central bank rates.

The instruments held by money market ETFs typically include:

• Government treasury bills
• Repurchase agreements (repos)
• Certificates of deposit issued by high-grade banks
• Commercial paper issued by high-rated corporations
• Short-dated government and agency bonds

Unlike equity ETFs, money market ETFs are designed to maintain a stable net asset value per share, with returns accumulating as income distributions rather than price appreciation.

How do money market ETFs work?

Money market ETFs track the overnight rate — the interest rate at which the largest financial institutions lend to each other for one day. This rate is set by or closely follows the central bank policy rate.

For sterling funds, the benchmark is the Sterling Overnight Index Average (SONIA). For euro funds, it is €STR. For US dollar funds, it is the Secured Overnight Financing Rate (SOFR).

The ETF holds a rolling portfolio of short-dated instruments. As instruments mature, the proceeds are reinvested. The yield you receive is essentially the overnight rate minus the fund's total expense ratio (TER) — typically 0.05% to 0.20% per year.

Distributions are paid monthly or reinvested (accumulating share classes), depending on which share class you choose.

Money market ETFs vs savings accounts

The comparison most relevant for UK investors is between a sterling money market ETF and a high-interest easy-access savings account.

As of June 2026:

• Bank of England base rate: 3.75% (held 29 April 2026)
• Best easy-access savings accounts: approximately 4.75-5.00% AER
• Best sterling money market ETF yields: approximately 3.55-3.75% (net of fees, tracking SONIA)
• Best cash ISA rates: approximately 4.75-4.76% AER

At current rates, the best savings accounts and cash ISAs pay more than a sterling money market ETF in gross terms. The advantage of money market ETFs is access, flexibility, and ISA eligibility alongside investment assets. For investors who already hold equities in a stocks and shares ISA, keeping uninvested cash in a money market ETF within the same ISA wrapper is more tax-efficient than moving the cash to a separate cash ISA — and significantly more efficient than holding it in a taxable savings account above the PSA.

Best money market ETFs for UK investors in 2026

The following are among the most widely held money market ETFs available to UK investors as of June 2026.

1. iShares £ Ultrashort Bond UCITS ETF (ERNS)
2. Invesco GBP Cash UCITS ETF (ICSH)
3. iShares Core £ Corporate Bond UCITS ETF (SLXX)
4. iShares Prime Money Market ETF (PMMF) — US dollar

iShares £ Ultrashort Bond UCITS ETF (ERNS)

One of the most popular sterling money market ETFs for UK investors, ERNS tracks the ICE BofA 0-1 Year Sterling Government & Corporate Index and holds a mix of very short-dated sterling bonds. It is London-listed, ISA-eligible, and has an expense ratio of 0.09%. Its yield tracks closely to SONIA with minimal tracking error.

Invesco GBP Cash UCITS ETF (ICSH)

ICSH is specifically designed to replicate overnight SONIA rates. It holds a diversified portfolio of sterling short-term instruments and carries a 0.10% expense ratio. It is one of the most direct expressions of the overnight rate available to UK retail investors as a UCITS ETF.

iShares Core £ Corporate Bond UCITS ETF (SLXX)

While not technically a money market ETF — SLXX holds short-to-medium-dated sterling investment grade corporate bonds — it is worth noting for investors willing to take a small amount of credit risk in exchange for higher yield. Current yield is approximately 5.0-5.5%, reflecting investment grade credit spreads over gilts.

iShares Prime Money Market ETF (PMMF) — US dollar

For investors with US dollar exposure or who want a dollar-denominated cash equivalent, PMMF is a US-listed ETF with a seven-day SEC yield of approximately 3.62% as of June 2026 and a 0.20% expense ratio. It holds a mix of certificates of deposit, commercial paper, and Treasury instruments.

Risks to understand

Money market ETFs are among the lowest-risk investment instruments available, but they are not without risk:

• Not FSCS protected. Unlike a bank savings account (FSCS-protected up to £85,000), money market ETF investments are not covered by the Financial Services Compensation Scheme.
• Yield follows rates downward. As central bank rates fall, so does the yield on money market ETFs. The Bank of England has been cutting since August 2024 and markets expect further cuts through 2026 if inflation continues to moderate.
• Real returns can be negative. With UK inflation at approximately 3.3% as of early 2026, a money market ETF yielding 3.6% is generating a real return of approximately 0.3%.
• Currency risk applies to non-sterling funds. US dollar money market ETFs expose UK investors to USD/GBP movements that can offset or amplify the yield.

Tax treatment of money market ETFs

Money market ETF distributions are treated as interest income for UK tax purposes, not dividends. This means they fall within your Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate taxpayers) rather than the £500 dividend allowance.

If held within a stocks and shares ISA, distributions from money market ETFs are entirely free from income tax regardless of amount. This is a significant advantage over holding the same instruments outside a tax wrapper, particularly for higher and additional rate taxpayers.

Capital gains on money market ETFs — which are typically minimal given the stable NAV — are subject to standard CGT rules if held outside an ISA.

How to invest in money market ETFs with us

You can buy sterling and US dollar money market ETFs through our share dealing account or stocks and shares ISA. UK-listed money market ETFs such as ERNS and ICSH are available from £3 commission per trade. US-listed ETFs including PMMF are available at £0 commission online.

Holding money market ETFs within an ISA is the most tax-efficient approach — all distributions are sheltered from income tax up to the annual £20,000 allowance.

For context on how money market ETFs compare with other cash and income options, see our guides on ISA vs savings account, what are corporate bonds, and how to invest in dividend stocks.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invest. Money market ETFs are not protected by the FSCS.