Personal Finance · Explainer
Savings account, money market fund or short-dated bonds?
Three homes for cash with three different risk and protection profiles — and only one of them is a deposit.
The short answer
- A savings account is a deposit and carries statutory protection up to a limit.
- A money market fund is an investment: no deposit guarantee, and its yield floats.
- Short-dated government bills carry sovereign credit risk and price risk if sold early.
Cash is not a single asset class. Where it sits determines who owes it to you, how fast you can get it, and what happens if the institution holding it fails.
Deposits
A savings account is a loan to a bank. The bank owes you the balance, and a statutory scheme guarantees a defined amount per depositor per institution if the bank fails. Rates are set administratively by the bank and can change with notice.
Money market funds
A money market fund pools investors and holds short-term instruments. There is no deposit guarantee. The yield tracks short-term rates closely, which cuts both ways — it reprices upward faster than bank deposits and downward just as quickly. Access is typically same or next day, not instant.
Bills and short-dated bonds
Buying government bills directly means holding sovereign credit risk and receiving a known amount at maturity. Sell before maturity and the price depends on where rates have moved. Tax treatment differs by jurisdiction and can be the deciding factor between otherwise similar yields.
Sources
- Money market funds — U.S. SEC
- Deposit insurance — FDIC
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