Savings accounts and money market funds are a bit similar because both are deposit accounts that pay interest.
A savings account is a good place for people to put their cash for a short period of time for very short-term needs, but provide a moderate rate of interest.
Banks use funds from savings accounts to lend to other consumers through car loans, lines of credit, and credit cards.
Money market funds on the other hand, pay a slightly higher interest rate than traditional savings accounts because banks invest in short-term, highly liquid low-risk assets. This usually makes them more attractive for depositors.
Many money market funds come with a minimum balance requirement. Customers who do not meet the required balance may lose out on high interest.
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Benefits of a Money Market Fund
MMFs are a great investment vehicle since they are low risk, meaning that you have a greater likelihood of getting your investment back once the investment term ends.
Most MMFs usually require very little initial investment but normally vary from one MMF to another.
For most MMFs, they are easily accessible, meaning that you can easily invest or withdraw.
MMFs are cost-effective and therefore, they are a simple and effective way of investing small amounts of money
Your funds are usually managed by a professional fund manager meaning you let your investment work for you without any extra charges.
A money market fund is a safe and secure investment vehicle in which you can grow your wealth or put your money in the short term.
The beauty of money market funds is that they are not only low risk, but they also offer principal protection and the likelihood of enjoying higher interest rates as compared to savings accounts.
Anyone can invest in a money market fund – be it individuals, chamas, corporates, saccos, NGO’s, SME’s and any other entity that seeks to achieve a good return on their funds in a professionally managed environment.
How does it work?
The funds from many investors are pooled together and invested in low-risk money market instruments and sometimes, liquid alternative investments.
The fund manager is in charge of overseeing the operations of the fund for a fee that varies from manager to manager.
They decide where to invest their client’s money in order to get the best returns.