Both earn something on cash you would otherwise leave in a current account. The difference is in how you get the money back, and what happens to the rate while you wait.
What a fixed deposit does
You lend a bank a set amount for a set term, often three, six or twelve months, at a rate agreed on the day. The rate is fixed for the term, which is its strength. The catch is access: break the deposit early and most banks cut the interest or charge a penalty.
What a money market fund does
A money market fund pools money from many investors and places it in Treasury bills, bank deposits and other short-term instruments. You own units in the fund. The return moves with short-term rates, so it can rise or fall from week to week, and it isn't guaranteed.
The trade for that variable rate is access. With Mfalme Money Market Fund there is no lock-in, and a withdrawal is paid within two business days of your request.
Five questions to settle it
- When might you need the money? If the honest answer is "I'm not sure", a fund you can leave at any time suits it better than a term you have to break.
- How much are you starting with? Mfalme starts from KES 1,000 and takes top-ups from KES 500. Many fixed deposits ask for far more.
- Do you want the rate fixed? A deposit gives certainty for the term. A fund follows the market in both directions.
- What does it cost? Mfalme charges a management fee of 2.0% a year, taken daily inside the price, with no entry or exit fee. Ask a bank what it charges to break a deposit early.
- Who holds the money? A unit trust's assets are held by a custodian bank, apart from the fund manager. For Tradiam's funds that custodian is I&M Bank.
The short answer
Use a fixed deposit for money with a fixed date that you are certain you won't touch. Use a money market fund for your reserve and for cash between decisions, where reaching it quickly matters more than locking in a rate.
