Money market fund

Money market funds invest in short-term, safe interest-bearing securities – short-dated government bonds, certificates of deposit and time deposits.

Money market funds vs. overnight money:

• Return: money market funds often 2.2–2.9% vs. Sparkasse ~0.5% (direct banks: 2–3%)
• Availability: T+1 to T+2 (1–2 days) vs. overnight money immediately
• Deposit protection: overnight money: yes (€100,000). Money market funds: no – BUT:
• Segregated assets: money market funds are FULLY protected if the fund company becomes insolvent – with no upper limit!
• Costs: 0.10–0.50% TER per year (overnight money: none)

When money market funds are better:

• Over €100,000: segregated asset protection deposit protection
• Poor overnight money rates: if your bank only pays 0.5%
• As part of your portfolio: a safe building block alongside equity ETFs

Popular money market ETFs:

• Xtrackers II EUR Overnight Rate Swap UCITS ETF (LU0290358497) – tracks €STR via swap, TER only 0.10%
• iShares eb.rexx Government Germany 0-1yr – short-dated German government bonds

Risks (small but present):

• Minimal price fluctuations (overnight money: none)
• The return falls when the ECB cuts rates
• In extreme crises (2008): high outflows possible for a short time