Where to Save Your Money: SACCO or Money Market Funds?

The first step to financial freedom is to save at least 10% of your income. But should you keep your money in the bank? Money put in a savings account loses value with inflation. Therefore, a prudent person must save where their money earns interest. 

Both the SACCO (savings and credit society) and MMF (money market fund) will earn interest from your savings. But which of the two is preferable?

Let's compare and contrast the pros and cons of saving in a Sacco versus an MMF to help you in your decision-making:

Pros of Saving in a SACCO

Some people save in a SACCO to borrow against their savings.

1. Lending terms

A person on a contract or in casual employment will not easily access a long-term loan from a bank. In such a case, a Sacco is a suitable savings vehicle. As long as your income allows it and you can get guarantors, you can borrow in your Sacco for the maximum duration they allow in their policy. 

2. Savings Discipline

If you have no savings discipline, the SACCO option suits you well. Most Saccos have savings deducted directly from salaries. If yours does that, it will save you from the temptation of skipping to save.

You can't withdraw your savings from a Sacco unless you are resigning your membership. This is an advantage for people with no savings discipline. 

Cons of Saving in a SACCO

1. Access to Savings

Are you saving for emergencies or investments?

SACCO is not the best place to save if you intend to use the money soon or invest it for emergencies. You can't withdraw savings from a SACCO account. They will force you to resign your membership and incur penalties.

2. Expensive to Borrow

Most people assume it is cheap to borrow from SACCOs, which lend at 12% per annum. In reality, it is not. 

A Sacco lends you a certain percentage of your savings. Most saccos provide three times the amount saved. Compared to a bank, this means they are lending you a portion of your savings with interest. Considering the difference in interest rates between banks and SACCOs is only 1–3%, the argument to save in order to borrow cheaply doesn't hold.

3. Penalties for withdrawing

Once you join a SACCO, they will penalize you for leaving. 

There is a certain amount you can never withdraw (share capital). Find someone to sell your share capital to or accept your loss. 

Pros of Money Market Funds

MMFs are currently one of the most popular investment vehicles in Kenya. Find some pros below:

1. Liquid

MMFs are highly liquid.

You can withdraw as soon as you want, without conditions. This factor makes them a suitable vehicle to save for emergencies and short-term needs.

2. High Returns

MMFs pay higher returns than bank deposits. You can read more about MMFs here. At the time of writing, MMFs earn an average of 8.6% and fixed deposits of 6.2%. 

3. Digital

Most MMFs are accessible on mobile phones. You can open an account and transact online without leaving your house.

4. Flexible savings

Even though most MMFs have minimum deposits you can make, you can easily adjust the amounts (upward or downward) with no hustle. 

Cons of MMFs

1. Savings Discipline

MMFs are not suitable for use without a savings discipline. You can address this challenge by setting up a regular standing order with your bank.

 2. Low Returns 

As much as money markets give better returns than fixed deposit accounts, the returns are still low at an average 8.6%. There are more lucrative places to invest. 

Money market funds have more advantages than SACCOs for people who do not need to borrow against their savings and have a disciplined savings habit.