informed decisions blog

Money Market Funds in Ireland – Real or Unreal!? Blog232

9th October 2023

Paddy Delaney

Only last week I wrote about Money Market Funds in Ireland and how they should and should not be used by businesses to generate some returns on their liquid cash.

But I want to explore whether Money Market Funds in Ireland are a real and valuable investment vehicle that everyone should consider, or if they are purely a sales tool used by financial advice firms to get money in the door!? This will be a short and concise piece, because I have time to do so!

So, an argument for them being a valuable vehicle for us all, and an argument for them being a sales tool…

Why Money Market Funds Are Real & Valuable For Us All

I won’t simply regurgitate what I said last week about the Pros of Money Market Funds, rather I’ll give a real example here.

You have €500,000 cash at hand. For whatever reason, you consider it prudent to not invest these assets in equity or any ‘volatile’ asset. Instead, you opt for something you believe to be secure and that gives a decent return.

You engage an advisor to help you design a simple Money Market Fund portfolio with a current total yield of 5%, using a blend of 3 Globally Diversified Money Market Funds. Let’s assume that interest rates and the yield of your portfolio remains at that 5% for the next 12 months.

Fund, platform and advice fees total say 1% on that account, so your net before tax is 4%.

In 12 months time, you would have €520,000 in that account, 4% gain. When you compare that to deposit accounts available here currently, it’s very solid and worth consideration. But don’t forget tax on gains!

Assuming this is a personal account under Exit Tax regime, tax is 41% on gains. If you withdraw your €520k after that 12 months, you will pay 41% tax on the €20,000 gains, so your after fees and tax total return is 2.36%. And that is assuming the yield stays flat, that it does not increase (possible) or decrease (also possible!).

Again, better than any State Savings Account and better than deposits accounts currently offer. State Savings 3 Year account currently offering 4% for the full term, with an AER of 1.32%, so you’ve almost doubled that!

Interestingly, AIB has launched a personal customer 2-year Fixed Term account that apparently offers 6% total, so an AER of 3%, which after DIRT tax nets to c2% per year after tax gains, which is a whole pile better than we’ve seen in recent times from the banks!

On that basis, it’s evidence that Money Market Funds, as a short-term vehicle, are a valuable consideration for us all.

Now, let’s look at the other argument…

Why Money Market Funds Are Nothing But A Sales Tool For Financial Advisors!

If an advisor gets you to invest your €500k in Money Market Funds as a 5-year plus investment solution, it’s a sales tool! They are convincing you to invest your €500k with them in a totally unsuitable long-term investment vehicle. They will charge upfront commission and/or ongoing fees to put you into something that you most probably should not be in for the long term. Let me explain.

Current inflation, even after falling from recent highs, is running at over 6%. Clothing and footwear prices have increased 4% in the past month alone, and recreation and leisure prices have gone up over 12% in the past year. While electricity, gas and other fuels are up over 17% in the last year. Basically, all the stuff you spend your money on in retirement has and is increasing in cost by at least 6% per year.

If your priority is that your cash (which you will use to pay for such things) grows at least in line with the price of the stuff you’ll buy in a year. Let’s say you are spending €400 per month on meals every year, let’s call it €5,000 per year. If the costs of dining out increase by 10% year on year, next year it’ll cost you €5,500 to enjoy the same amount of romantic meals out! It’s obvious but we want our €5,000 cash to grow.

Money Market Funds cannot realistically be expected to give you long-term returns commensurate with inflation. Money Market Funds, just like deposits, will see you lose purchasing power over the long term.

Money Market Funds are not designed nor intended as long-term ‘investments’. If your advisor is selling them to you as such (yes they are selling them!), they are using them as a sales tool to get you invested, knowing that it is not a suitable or valuable solution for the long term.

Where’s The Middle-Ground On Money Market Funds So??

Money Market Funds are viable options in the following scenario:

  • If you want to allocate a small part of your overall holdings to something that might give a better return than deposits, but without the deposit guarantee
  • As a way to get your money to do something half-decent, as a stepping-stone to getting properly invested in the near term
  • If you are absolutely terrified of any sort of volatility and want something that has a low probability of falling below invested amount
  • If you don’t need to avoid losing purchasing power!?
  • If you really need to try get some returns on your funds and to access them in the near term but are dead-set against deposits or State Savings

I think we’ll all agree, Money Market Funds are not going to change your world – so don’t get too worked up about them, but they may be useful for some as part of a bigger plan.


Paddy Delaney QFA RPA APA

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