Money Market Funds vs. High-Yield Savings Accounts

Understanding high-yield savings accounts 🤑

If you’re on the search for the best savings account with high interest, a high-yield savings account is a natural choice. This type of account gets you in the habit of goal-setting and saving, while giving you a taste of the reward of investing when you leave your money alone: growth.

Often when it comes to investing, being exposed to better returns means taking on a bit of investment risk in the short term. What happens if you urgently and unexpectedly need access to that money?

With a high-yield or high-interest savings account, you take on the benefit of growth, without the risk.

Here’s what makes a high-yield savings account an attractive option if you want to do something with your money that keeps things simple, while protecting and growing your money:

✔️It gives you access to your money whenever you need it.
✔️It offers a secure savings option with growth.
✔️There is usually either no or very low minimum deposit requirement.

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Not all savings accounts are made equal. Many banks have a long list of T&Cs when it comes to the return you can earn on a high-yield savings account. Sure, you can earn an almost guaranteed high interest rate, but only if you have a high minimum, have locked in your money, or give a long notice period before withdrawing. With the Franc Savings Account, you get a fixed interest rate with none of the catches.

Great for: Novice investors looking for a simple way to start out. Emergency funds and short-term savings goals like holidays are common goals for high-yield savings accounts.

Money market funds, explained 📈

A money market fund is a low-risk investment that allows you to earn a good return in a secure, accessible way.

When it comes to a money market fund, you are essentially lending money to the bank, government or a large South African corporation, with the promise of interest in return. Because these are relatively stable entities, this is a low-risk investment – they’re likely to pay the money back.

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Learn more about money market funds here.

Because money market funds are actively managed by a fund manager and are invested in corporate debt – giving you access to the rates large entities are willing to pay – they often offer better returns than a high-yield savings account. But, because there is still some risk involved, interest rates can also be less predictable.

Many money market funds also have a minimum required deposit.

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There are no minimums on the Franc cash fund. When you invest in the Franc cash fund, you’re investing in the Allan Gray money market fund. Because we want to make investing simple and accessible to more South Africans, there are no minimum deposit requirements or withdrawal notice periods.

For all the above reasons, a money market fund is not ideal as a transactional account. If you’re looking for somewhere to save that emergency fund where you have almost instant access to your money, a high-yield savings account is probably a better bet.

High-yield savings account or money market fund: which to choose? 🤷‍♀️

In a nutshell, high-yield savings accounts and money market funds share these in common:

⚖️Minimal risk
⚖️Better returns than a basic savings account

And they differ in these ways:

⚖️ There is often a minimum deposit required for a money market fund.
⚖️ Money market funds are actively managed to get the best return available, whereas high-yield savings accounts are often offered directly by banks.
⚖️ While money market funds are low-risk investments, there is still some risk involved. When it comes to high-yield savings accounts, your return is often fixed (but will go up and down with the interest rate environment).

If you’re looking to save for the very short term, or an emergency fund, using a simple, secure and easily transferable savings vehicle, a high-yield savings account is a solid option. It’s simple, effective, and can offer a fixed return.

If you’re looking to grow your money in the short or medium term, and don’t need that money to be immediately accessible, like saving for a car or deposit on a property, studies, or wedding fund, a money market fund is a good investing option for you.

Comparing savings accounts 🔍

BusinessTech recently did a comparison of South Africa’s major high-yield savings accounts, and this is what they found:

Source: BusinessTech

*Note that this survey was done before rates dropped 0.25% on 20 September 2024, so many of these interest rates might now be lower.

How does the Franc Savings Goal compare with other high-yield savings accounts?

If you have a Starter Account, you can earn 5.5% interest per annum. If you’ve upgraded to a Pro Account, you get a competitive fixed 7% interest per annum.

*Note that these interest rates might change as the interest rate environment changes.

Here are some other benefits of saving your money in the Franc Savings Goal:

⬇️ You can access your money at any time – NO lock-ins!
💸 There are no minimum deposits to get started. You get to start saving with as little as you want, as often as you want.
📈Interest is calculated on your balance in real-time with our Live Interest Tracker, so you know exactly what you’re working with.