What is a money market fund?
Money market funds are a type of mutual fund. They invest in high-quality government and corporate debt securities that have relative short maturities and low credit risk.
Money market funds aim to preserve capital and provide steady income. You can easily access the cash in a money market fund when you need it.
Because they are mutual funds, investors pay management expenses fees, generally between 0.2 and 1.5%. There may also be transaction fees.
They may also require a minimum initial investment and balance requirements.
What is a high-interest savings account?
A high-interest savings account is similar to a regular savings account except it typically pays a higher interest rate which is calculated daily and paid monthly or at the time you take the money out.
You can get easy access to your money when you need to.
There are no fees, lock-in periods, maturity dates, penalties or minimum deposit required.
In addition, your money is protected (up to applicable limits) by Canada Deposit Insurance Corporation (CDIC).
Choosing between a money market fund and a savings account
Both money market funds and high-interest savings accounts are popular because they’re a safe place to invest money and earn some return.
Here are some ways you can choose which is better to achieve your saving goals.
Money market funds try to maintain a steady unit price, however, there is always the risk their price will fall. In addition, the return you do get will be reduced by management expense ratio (MER).
With a high-interest savings account, your return is provided through an interest rate that is affected by the Bank of Canada prime rate and the interest rate offered by financial institutions.
There is more investment risk involved with any mutual fund, but with that risk comes the potential for greater return. With a high-interest savings account, there is no risk you’ll lose your initial investment, or its value will fall.
With a high-interest savings account, your money is protected (up to applicable limits) by Canada Deposit Insurance Corporation (CDIC). There is no such protection with a money market fund.