14 Mar 2023 3 min read

Why are bank account rates still so low, and what can savers do about it?

By Ross McDonald

Despite the UK's central bank lifting interest rates to tackle inflation, the rates on offer from instant-access bank accounts remain very low. Could money market funds help bridge the gap?


In February the Bank of England increased the policy rate for the 10th consecutive time to 4.00%, up from 0.10% just 13 months ago. This has prompted some, including a cross-party Treasury Committee,1 to ask if and when UK banks will be passing these increased rates on to savers.

In response, the largest four UK high street banks said they can better service their customers by helping to build better savings habits via regular savings accounts rather than by increasing the interest rate on instant access accounts. 

Although most banks do offer higher-interest accounts, they often come with limitations on the maximum balance or monthly deposits, so may not help savers with large cash balances. Instant-access savings accounts across the largest four UK high street banks remain below 1.00%.2

Some investors have therefore started to look more closely at money market funds (MMFs). In this blog we consider how market rates have fed through to MMFs, as well as some important differences between deposit accounts and MMFs.

A passing interest

During the extended era of ultra-low rates, it’s been a common complaint that savers have been unable to earn a meaningful return on cash balances. As interest rates moved higher, banks have been slow to pass this on.

MMFs, however, which invest in the wholesale markets (purchasing short-term instruments such as reverse repos, deposits, certificates of deposits and commercial paper) have been quick to reflect higher rates.

The chart below shows the returns on offer from MMFs have closely matched the underlying bank rate.

It also shows average returns available via cash ISAs – a widely used savings account for which good historical data is available. Because cash ISAs have an annual savings limit of £20,000, the rate on offer is around double that you’ll find on many instant-access savings accounts. Despite offering a much higher rate of return than instant-access savings accounts, the average cash ISA rate is still far below the average MMF.


MMFs in UK and Europe have historically been largely the preserve of professional investors,3 who make use of the products to manage their large operational cash balances.

However, these funds are also available to retail investors and savers via investment platforms, brokers and wealth managers, and as investment products can therefore be held in an investment ISA, a general investment account or even within a self-invested personal pension (SIPP).4

An investment fund, not a deposit account

It’s important to remember that MMFs are not the same as deposit or savings accounts held with a bank.

The value of the amount invested may fluctuate, the investor bears the risk of any losses, and MMFs are not protected by any national deposit protection schemes.5

Additionally, holding additional cash balances just to ride out market uncertainty may not be a wise decision. For long-term investors, it’s better to think in terms of ‘time in the market’ rather than ‘timing the market’.

However, for those investors or savers looking for a market rate return on their cash, MMFs certainly warrant a closer look.


1. https://committees.parliament.uk/event/17334/formal-meeting-oral-evidence-session/

2. As of 10 Feb 2023: Barclays Everyday saver: 0.55%, HSBC Flexible saver: 0.90%, Lloyds Standard saver: 0.60% Natwest Flexible saver: 0.65% (assuming £10,000 invested – some accounts offer tiered rates dependent on account balance.)

3. Circa. 90% of investors in MMFs are institutional – ESMA market report: https://www.esma.europa.eu/sites/default/files/library/ESMA50-165-2391_MMF_market_2023.pdf

4. Subject to availability from provider or investment platform

5. Such as the UK Financial Services Compensation Scheme (FSCS)

Ross McDonald

Liquidity Investment Specialist, Global Trading Team

Ross is an investment specialist within the Liquidity Management team. He joined LGIM in 2021 from Goldman Sachs Asset Management, where he was an executive director in the Liquidity product strategy team. He began his career at Deloitte where he qualified as a chartered accountant. Ross holds a MA in Accounting and Economics from the University of Edinburgh and is a CFA charterholder.

Ross McDonald