Money Market Funds vs. Deposits: Fees Decide the Winner

Money Market Funds vs. 4% Deposits: The TER Decides

Some euros have been parked in a foreign bank for months because the institution simply has no deposit products to offer. The owner wanted a three or six-month term, anticipating the time needed to find an asset manager. The bank proposed the Goldman Sachs money market fund IE0031296019, with a 0.3% management fee, 0.05% trading costs, and 0.20% custody fees. Available deposits hover around 3%. Given this cost structure, the answer is clear.

What is a Money Market Fund and What Returns Does It Offer?

A money market fund lends money on very short terms, earning the benchmark interest rate, the €STR, which stands at 3.90% in the current context. This means that as long as rates are positive and fees are low, the net asset value rises. It is not a get-rich-quick scheme: one of the funds mentioned here, Le Francaise Tresorerie, returned 1.32% annually. This is a modest, mechanical return with little volatility, competing directly with savings accounts and deposits.

What is a Reasonable Fee for a Money Market Fund?

The prevailing criterion is strict: the Total Expense Ratio (TER) of a money market fund should not exceed 0.20%; above that, the numbers do not add up. The 0.3% product offered falls outside this range, and the 0.20% custody fee seals the deal by eating into most of the interest yield. The market offers alternatives with a TER of 0.05%, such as AXA Tresor Court Terme C, available through low-cost platforms, along with other frequently cited names like Groupama Ultra Short Plazo, La Francaise Tresorerie, or DWS Floating Rate Notes. The trap lies not in the fund itself but in the intermediary: some apply custody fees while others do not. The breakdown of what each charges ultimately breaks the tie.

Can You Lose Money in a Money Market Fund?

The logic is simple: to lose money, interest rates minus fees must result in a negative figure. As long as rates are positive and costs are negligible, the fund appreciates. However, risk is not zero: counterparty risk always exists, and if the portfolio holds a small portion of short-term debt, it may cause temporary fluctuations in the net asset value. With rates well above zero, a loss scenario requires a catastrophe, and no one guarantees outcomes in such events. It is noted that achieving the referenced 3% annualized return becomes difficult when paying custody fees.

Pure Money Market Fund or Risk Level 2 While Rates Rise?

Here, nuance matters. Funds classified as risk level 2 exhibit more volatility due to slightly longer portfolios; the discussion suggests that while the €STR rises, they outperform pure money market funds, whereas pure funds would hold up better if rates fall. Hence, the proposed strategy: utilize ultra-short-term products during rising rate phases and switch to a pure money market fund when central banks begin cutting rates. Manager selection also plays a role: some avoid specific funds belonging to entities considered systemic banks, preferring not to add counterparty risk to money intended to sleep soundly.

4.3% Deposits, 3.75% Accounts, and Maturity Dates

The comparison with deposits is not trivial. In the final stages of the analysis, placements offering 4.2% in the first year and 4.3% in the second are closed, cancellable with one month's notice and a 2% penalty, alongside others at 4% or non-cancellable six-month terms. Outside traditional banking, accounts paying 3.75% and 2.88% appear. The takeaway is that the antiestéticar of locking up capital grows when inflation rebounds and further rate hikes are anticipated.

Money Market ETFs for Instant Stock Market Entry

Another aspect of the issue: some investors prefer liquidity in a money market ETF to sell instantly and enter stocks without waiting for fund settlement. The cost involves trading commissions, around 0.12%, prompting questions about whether the operation is worthwhile. This doubt is legitimate and remains unresolved.

The Disruptive Data Point

While debating whether 0.3% is expensive or if custody fees are advisable, the €STR reaches 3.90%, and those holding liquidity in a non-paying bank incur an opportunity cost that grows independently. The paradox is evident: there is no free lunch, but idle money is not free either.