Money Market Funds (MMFs) account or savings account

Money Market Funds (MMFs) or savings account

The decision of whether to save your money in a commercial bank’s savings account or invest it in a Money Market fund account highly depends on a person’s risk tolerance, liquidity needs, and financial goals. A savings account is a bank account that earns interest, and allows deposits, but limits the number of transactions. A Money Market Fund is different because it is a type of mutual fund that pools funds from different people and invests them in short-term securities. The following are the main distinguishing features of the two that will guide your decision on what option will best serve your needs. Although money market fund accounts and savings accounts have some similar characteristics, they are also different in the way they serve user needs.

Similarities between Money Market Fund account and savings accounts

· Both Money Market Fund accounts and savings accounts allow returns on the deposited funds in the form of interest.

· It is easy to open both the Money Market Funds accounts and savings accounts since in many instances both have few opening requirements.

· Both the Money Market Fund accounts and savings accounts offer ease of depositing funds and saving. It is therefore easy to increase one’s investments or savings at any time.

Differences between Money Market Fund accounts and bank savings accounts

Interest rates

· Money Market Fund accounts offer compound interest while bank savings accounts offer simple interest. Compound interest is calculated and paid as a percentage of the principal amount and any other accumulated interest. On the other hand, simple interest is calculated and paid as a percentage of the initial investment. Any accumulated interest is not included in the calculation of the interest.

· In many instances, Money Market Funds accounts also yield higher interest compared to savings accounts by commercial banks.

Accessibility or terms for withdrawal

In a Money Market Fund account, investors can access their funds at any time while in a bank savings account the funds are tied to a certain period for instance one month, three months, six months, etc. This means that people can only access their funds after a certain period following their deposit date or the last withdrawal date. This period differs depending on the account type or terms of the specific bank. For instance, the Hekima savings account by the Co-operative Bank only allows withdrawals once quarterly.

Risk

Money Market Fund accounts have a low risk on the investment and are safer compared to savings accounts, which offer lower interest rates, thus easily affected by inflationary forces.

Liquidity

Money Market Fund accounts have higher liquidity compared to bank savings accounts. Most of the MMF accounts have applications that enable investors to monitor the performance of their investments and allow them to easily deposit or withdraw funds. On the other hand, many savings accounts require the customers to physically avail themselves to the banks for withdrawal, thus lowering the flexibility in accessing the funds.

Hence, the above considerations are crucial in guiding investors on whether to go for the Money Market Fund accounts or savings accounts. Although both accounts yield interest on the invested funds, in many instances, Money Market Fund accounts yield higher interest than the savings accounts. However, one can opt for either of the two depending on their needs and preferences.

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