There is a debate I have seen a couple of times; Sacco vs Money Market Funds. There is one camp of Sacco proponents and another of MMFs, with each simply being against the other. I am not saying that each of these individuals is not right. A Sacco might work for Party A and becomes a financial disaster for Party B. The same applies to MMFs. Each party has the right to speak for or against either of these avenues. 

But is that enough reason to follow them blindly? Absolutely not. Remember that personal finance is as personal as it can get. It is quite difficult for someone else’s situation to be similar to yours. There is a reason your friend chooses a Sacco to the MMF and vice versa. It all narrows down to their financial goals and objectives.

What are yours? You get a better perspective of your financial needs by answering this question. This brings you closer to choosing which of these avenues is good for you. 

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Sacco vs Money Market Funds: Which is Better For You?

1. Purpose

The first question you need to ask yourself is, “why am I setting this money aside?” Is it for emergencies? Are you saving towards a particular goal? Or is it for long-term investment purposes? 

The purpose of putting the money aside will help you determine the acceptable rate of return and liquidity of the funds.

2. Speaking of liquidity 

It simply refers to how fast you can access your money. 

If you are looking for a place to park a few coins with returns and is highly liquid, an MMF is the best option. Most MMFs allow you to access your funds within 24 to 72 hours. Some even have a USSD that gives you instant access to your funds. For instance, I have an MMF account with Genghis. I get my money instantly through Mpesa, although there is a limit on how much you can access per transaction. 

Saccos have a FOSA account that operates as a current account. It gives you access to your money at any time, too. But the returns from the FOSA account are not viable compared to what the Member Saving account offers. Or the MMF, for that matter. 

What about the Member Deposit account that has a higher return? Or the Share Capital? Don’t forget that you cannot withdraw funds from your Sacco’s Member Deposits account unless you withdraw your Sacco membership. As for the Share Capital Funds, these are not refundable; unless you get someone else to buy off your shares in the Sacco and refund you the money. 

Related read The Good and the Bad of Joining a Sacco

3. Returns

Both options offer incredible returns. But how much you get will depend on the Sacco or MMF you join. For instance, some Saccos offer higher rebates and dividend returns than most of the available MMFs. Still, these returns are higher for the money you purchase Sacco shares with, not what is in the Member Deposits account. 

That said, depending on your liquidity and saving purposes, you can settle on the best option based on your targeted returns. Analyze the available returns from different providers, both Saccos and MMFs. Who offers an agreeable return and meets your minimum requirements? 

Looking for a Money Market Fund to join? Here are some of the top choices to consider

Example 

A Sacco would be appropriate if the funds are for long-term investment or goals with a longer horizon. The money in your share capital and member deposit accounts will probably earn you more in dividends and rebates. You can also use your member savings as collateral to borrow funds for development, like buying assets or starting a business. In addition, these funds are not easily accessible, ensuring you do not withdraw unless it is necessary.

Money Market Funds, on the other hand, are very liquid. They are built for the sole purpose of investing in short-term assets with a maturity period of less than 1 year, like T-Bills and Commercial Papers. So the financial institution has no problem availing the money within 24 to 72 hours, depending on the institution. In addition, the returns from most MMFs are much better than what you will get from a bank’s fixed account. As such, MMFs are an excellent avenue for parking money for short-term goals, like emergencies, vacations, and purchasing items that do not require significant amounts of money. 

You can also have both, depending on your financial goals. Diversifying your portfolio and never having all your money in only one institution is always good. 

Case in point, I have two MMF accounts (which I have unfortunately drained and trying to rebuild) for various reasons. Most of these reasons are short-term, though. One of the accounts is an emergency fund and the other I use to save for future expected payments like insurance premiums. So every month, I put aside money for these premiums in this account rather than waiting till the renewal period and coughing out the money from that month’s salary. 

On the other hand, I use my Sacco account to pack money for future investments (some of which I have not even thought about) because I will certainly use this money if it remains in my current account. Or the Money Market Fund, for that matter, because it is very liquid. This offers me the option to either borrow against my savings when needed or withdraw from the Sacco altogether. 

Be Careful, Though

Every financial institution has its pros and cons. Whatever Sacco of Money Market Fund you decide to join, do your due diligence. Ensure it is regulated and authorized to operate. They also need to have enough asset base, especially Saccos. Many have gone down, and members have lost millions of money in the process. In one of my previous episodes, episode 6, I talked about the common red flags of a Sacco that’s in trouble. I will leave a link to that episode in the description. 

Most importantly, read reviews from current and previous clients. How are their services and customer care? Do members have complaints about delayed payments and poor communication? Whether it’s an MMF or a Sacco, that’s a red flag.