Money Market Funds: A High-Yield Alternative for Your Emergency Savings

What is a money market fund, and how does it work?

The fund's composition: very short-term receivables

A money market fund—technically known as a money market UCITS (Undertaking for Collective Investment in Transferable Securities)— invests exclusively in debt instruments with very short maturities:

• negotiable debt securities (TCN);
• Treasury bills issued by eurozone countries;
• bank certificates of deposit;
• bonds with a residual maturity of generally less than two years…

The portfolio’s weighted average maturity is often less than six months. These assets are issued by governments, financial institutions, or large corporations with strong credit ratings. The fund does not take positions in the equity markets, does not speculate on currencies, and does not invest in complex leveraged products.

The direct link to the ECB's key interest rates

The performance of a money market fund closely tracks short-term money market rates, the primary indicator of which is the €STR (Euro Short-Term Rate), the euro area’s overnight reference rate. It is calculated and published daily by the ECB and reflects the cost of unsecured euro-denominated borrowing for banks in the euro area.

Virtually zero volatility with low risk

The net asset value of a money market fund fluctuates very little on a daily basis. This apparent stability sets it apart from bond and stock funds. However, this does not mean that the principal is guaranteed. 

Two risks remain:

• interest rate risk (a sudden rise in market interest rates may temporarily erode the fund's value);
• credit risk (the risk that an issuer held in the portfolio will default, even though money market funds invest only in high-quality issuers).

However, this product is intended for conservative investors, offering low returns and low risk.

The Actual Performance of Money Market Funds

A steady downward trend since mid-2024

Data from the Banque de France allow us to accurately track the performance of French money market funds over time. The 12-month return stood at +4.07% in June 2024 and then declined steadily as the ECB cut interest rates, reaching +2.21% in January 2026. These figures are net of management fees but before deducting any entry or exit fees.

Comparison with the Livret A

The Livret A has been paying a net interest rate of 1.5% since February 1, 2026. At first glance, a money market fund offering 2.2% seems much more attractive. However, there are two caveats to consider.

• From a tax perspective, interest earned on a Livret A savings account is exempt from income tax and social security contributions. Earnings from a money market fund are subject to a flat tax of 31.40% (a single flat-rate levy consisting of 12.8% income tax and 18.672% in social security contributions), unless the fund is held within a life insurance policy or a PEA. After taxes, the difference narrows significantly for a taxable investor.
• The performance of money market funds tracks ECB rates. If the ECB raises its rates (a hike is being discussed for June 2026 given growing concerns about a resurgence of inflation), the trend could reverse. By comparison, the Livret A interest rate is also falling steadily.

The Impact of Management Fees

The management fees for a money market fund are significantly lower than those for an actively managed stock or bond fund. They generally range from 0.05% to 0.920% per year for standard funds available to individual investors. On a gross return of 2%, a fee of 0.15% represents a deduction of 7.5% of the gross return, which is still moderate.

On the other hand, when market rates are close to zero (as they were between 2015 and 2022), these same fees can eat up almost the entire return—or even make the net return slightly negative. This is precisely what happened for several years and led many investors to turn away from this type of fund. It’s important to be aware of this so as not to repeat the same mistake in the opposite direction.

How and where can you invest in a money market fund?

Available Envelopes

A money market fund can be held in several accounts, each with its own tax characteristics:

• In a standard securities account, access is the simplest and most straightforward, and gains are subject to a 30% flat tax;
• In a life insurance policy, money market funds are structured as unit-linked products, and the tax rules for life insurance apply (gains are taxed only upon surrender, with an annual tax exemption of €4,600 for a single person or €9,200 for a couple after holding the policy for eight years);
• In a PEA (stock savings plan), eligibility requirements are more restrictive, as only money market funds composed primarily of securities issued by issuers in the European Union may be held in the account, which excludes some of the available funds.

Liquidity: A Real Strength of the Money Market Fund

Unlike a time deposit or a euro-denominated life insurance policy subject to redemption periods, a money market fund offers daily liquidity. Redemption is generally possible every business day, and funds are returned within a few days. It is this advantage that makes it a suitable vehicle for emergency savings beyond the Livret A limit or for short-term cash management. 

Is this a good time to invest in a money market fund?

This is a valid question given the decline in performance since mid-2024 following the ECB’s cuts to its key interest rates. Yields had previously been attractive since mid-2023, when key interest rates were high.

In April 2026, the ECB kept its interest rates unchanged while expressing growing concerns about the resurgence of inflation, with a first rate hike mentioned as a possibility in June. If this scenario plays out, money market funds could regain some of their appeal, but betting on a rate hike always carries a risk.

‍Today, there is a wide range of money market funds available, and their performance varies greatly depending on fees and management policies. Raizers selects and presents investment options for you in an educational and context-rich manner, drawing on its expertise in wealth management. 

Past performance is not indicative of future results. All investments involve the risk of loss of principal.