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Which is Better: SACCO vs Money Market Fund?

Vincent Nyoike
Vincent Nyoike Investment

When it comes to saving and investing, many people are torn between SACCOs and Money Market Funds. There are many reasons why people save or invest. Your investment goal can help you decide what to pick, SACCO or Money Market Fund. You can choose to invest your money through a SACCO or a Money Market Fund. So, what is the difference between a SACCO and a Money Market Fund?

What is a SACCO?

SACCO stands for Savings and Credit Cooperative. It is a group of people with a similar goal or interest who come together to form a credit union. These people pull funds together by mobilizing savings so that they can access loans at low-interest rates.

In SACCOs, members contribute some amount of money every month that helps them build up their shares. The SACCO then invests this money by giving out loans to the same members at an interest rate. From the interest rates the SACCO gets from the issuance of loans, it distributes the gains to the members as dividends. The rate of dividends is declared by the Directors at the end of the financial year.

Read more: Best investment SACCOs in Kenya. 

What is a Money Market Fund?

A Money Market Fund is a mutual fund or unit trust that invests in highly liquid instruments like cash, securities, and cash equivalents. These securities usually have a short maturity term which can be around 12 months.

In simple terms, a Money Market Fund is a kind of unit trust where people pull funds together to invest in a collective scheme. Their money can be invested in treasury bonds or shares.

Investors’ money in the Money Market Fund is managed by financial experts known as Money Market Fund managers. You will notice that most Money Market Funds are operated by insurance firms, meaning your investment is secure. Money Market Funds’ interests are calculated daily, from Monday to Friday, and deposited into the account at the end of the month.

Related: Best money market funds in Kenya. 

Which is Better: Sacco or Money Market Fund?

It really depends on your goal. If you are looking for a long term investment option and access to cheaper loans, go for a SACCO. If you are looking for a short term investment option with high liquidity, go for a Money Market Fund. 

How a SACCO Works

With a SACCO, you need to be making monthly contributions to help you grow your shares. From the monthly contributions you make, the SACCO gives loans to members at interest rates. From the interest rates the SACCO gets from the issuance of loans, it distributes the gains to members based on their shares as dividends. 

Most SACCOs give loans of up to three times the members’ shares. So, if you have shares worth Ksh 30,000, you can get a loan of up to Ksh 90,000. Loans from SACCOs attract low interest rates compared to those from banks.

To become a member, you need to register with a SACCO and make monthly contributions for at least 3 months. For most SACCOs, minimum monthly contribution is usually Ksh 2,000. Dividend rates are usually between 8% and 20%, depending on the SACCO. If you want to withdraw your shares from a SACCO, you need to wait for at least 2 months. Alternatively, you can transfer your shares to someone else.

How a Money Market Fund Works 

On the other hand, if your goal is to save some money and get an extra coin after some time, go for a Money Market Fund. Most MMFs pay an interest rate of between 5% and 11%. Interest rates are calculated daily, Monday to Friday, and deposited into your account at the end of the month.

With a Money Market Fund, the MMF manager manages the investor’s money. With an MMF, risks are low and you can’t lose your money. If you want to get back your money, you just need to write to the MMF manager and you will have your cash in just 3 working days.

Conclusion: SACCO vs Money Market Fund?

Essentially, SACCOs and Money Market Funds are equally good. It all depends on your goal. If you are looking for a short term investment and earn get some revenues, go for an MMF. If you are looking for an investment option to grow your portfolio over time and get loans at low rates, go for a SACCO.

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