The new sector will have stricter limits on the type of instruments funds can invest in and their maturity than the existing money market sector, which will continue to exist.
The new sector, available on November 1, follows an extensive consultation with the FSA which showed demand for a sector whose principal and overriding objective is the stability of capital.
The new deposit and treasury sector will therefore contain money market funds that are only allowed to invest in relatively simple instruments, such as time deposits or Government bonds.
All instruments held by funds in the new sector must be denominated in Sterling and have a maximum duration of 12 months.
ABI director of life and savings Maggie Craig says: “This move is good news for consumers. It will make it easier for people seeking stability during the current volatility. Whilst no fund is risk free, the new sector will only contain the simplest funds available.”