Covid, and the related restrictions on life and business, decimated many an emergency fund. That was for those fortunate enough to have savings to cushion the blow of losing some of or all their income; things were probably a lot tougher for the many people who did not have any short-term savings to fall back on.
As both groups look at ways to recover and rebuild their wealth, interrogating various savings products is an excellent place to start.
One size definitely doesn’t fit all when it comes to money matters, but there are some guidelines that can be customised to suit most lifestyles and budgets. A key rule of thumb is that workers should aim to have 3-6 months’ worth of living expenses saved in a low-risk savings vehicle, which they can access quickly in the event of an emergency.
An ideal vehicle for an emergency fund is a money market account, or money market fund. Understanding the difference between the two will help savers make better decisions with their money.
What is a money market account?
A money market account is a short-term deposit account offered by a bank or financial institution. Money held in the account earns an agreed interest rate. Most money market accounts offer transactional features such as making payments from the account.
What is a money market fund?
A money market fund is an investment product offered by an investment manager, where multiple investors’ money is pooled to invest in a variety of money market instruments across multiple issuers, such as negotiable certificates of deposit (NCDs), wholesale call deposits and short-term bonds. Given their classification as a “Collective Investment Scheme”, money market funds are tightly regulated by the Financial Sector Conduct Authority (FSCA) in the interest of investors.
Find out more about the 10X Money Market Fund here.
Key differences
There are important differences between these two options that you should consider in relation to your goals.
The minimum investment required for a money market account at a bank is typically R20,000 or more. In the past, money market funds required a minimum investment of R100,000 or more, making them largely inaccessible to individuals. These days, however, investment managers, including 10X Investments, offer a money market fund account from as little as R1,000, or a monthly debit order of R500.
Since money market funds invest in various money market instruments across multiple issuers, rather than a single bank, they are well diversified, which significantly reduces the risk of losing all or part of your capital.
Whilst money market funds do not provide a capital guarantee the way a money market account does, a money market fund has a very low risk of capital loss.
Money market accounts quote interest rates upfront, which allows the investor to know their expected return in advance. Money market funds, however, are not able to quote a forward-looking rate as yields fluctuate.
A money market fund typically takes 1-5 days to process a disinvestment. Cash in a money market account is typically available within 24 hours.
Investment managers charge a fee for managing a money market fund. These fees are incorporated in the yield, meaning that the yield is net of management fees. Money market accounts do not typically have fees, but transaction charges may be levied, depending on the type of transaction and amount.
Summary
10X Investments is running a campaign aimed at helping South Africans rebuild their wealth: anyone who starts a new 10X unit trust investment or opens a 10X Tax-Free Savings Account before February 28 will pay no investment fees until July. Ts and Cs apply.
Find out more about the fee-free offer on unit trusts and tax-free savings accounts.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250). 10X Index Fund Managers (RF) Pty Ltd is a Manager registered under the Collective Investment Schemes Control Act, 2002.
