Bank Deposits vs Money Market Funds: Which One is More Profitable?

Hi, Moduers!

Moduers, for your short term investment or emergency fund, where do you invest usually? Bank deposits or money market funds?

Whatever your choice is, there is no right or wrong answer. It all depends on your goals and decisions. But first, make sure you know the advantages and disadvantages of the instrument that you choose, such as the topic we will discuss this time: Bank Deposits vs. Money Market Fund: Which One is More Profitable?

 

Let’s begin.

 

  1. Investment period

For the first aspect, let’s look at the investment period on bank deposits and money market funds. To invest in bank deposits, you can choose a time period between 1 month until 24 months to withdraw your bank deposits. The greater the amount of money and the longer the investment period, the higher the returns you will get. However, if you withdraw your deposits before the maturity date, you will be charged penalty fees.

Meanwhile, if you invest in money market mutual funds, you can invest and withdraw it any time on bourse day (Monday to Friday, except national holidays or bourse holidays) without penalty fees as the mutual fund yield is calculated on every bourse day.

 

  1. Ease of Registration and Redemption

If you invest in mutual funds in Moduit, you can register using a savings account that you already have. You can buy or withdraw all of your investment online either through application or web without being charged for service fee unless you use a certain payment method. However, if you invest in bank deposits, you need to have a bank savings account and pay IDR 6.000 for stamp duty when you register or withdraw your deposits. You also need to pay attention that some banks require you to register and disburse your deposits by coming to the bank.

 

  1. Interest or Yield

One of the advantages of bank deposits is the fixed amount of return, which is suitable for getting a regular cash flow. Bank deposits’ interest will be set at the beginning for deposits initial opening period. For example, bank deposits’ interest rate was set at 4% per annual. Then, the applicable interest rate for a year is 4%. If the deposit is extended, the next interest rate will follow Bank Indonesia’s interest rate benchmark.

Meanwhile, in money market funds, the amount of yield you receive is not set initially and not fixed since it is calculated every bourse day. Still, if you look at the performance graph, money market mutual fund values tend to increase over time. Also, to get the yield from the money market mutual fund, you have to redemption first. Below is the performance chart of 3 money market mutual funds*:

 

Performance chart of the 3 selected funds

 

What if the returns compared to inflation?

Well, that is a good, frequently asked question. Based on Bloomberg’s data, the average annual inflation for the last 5 years in Indonesia is 3.16% per year, while the highest deposit interest rate is currently 5.63% per year before tax.** Money market mutual fund itself can offer 6.04% potential yield per annual and tax-free.***

Investing in money market mutual funds can be considered tax-free since it has been calculated in the Net Asset Value (hence the net came from), and when this article was written, bank deposits interest is taxed for 20%.”

 

  1. Invested Amount

To invest in money market funds, you only need IDR 10,000 minimum to IDR 100,000 depends on the product you choose. As for bank deposits, the initial amount to be invested varies, starting from IDR 8,000,000 depends on the bank’s policies.

 

NO.COMPONENTSBANK DEPOSITSMONEY MARKET FUNDS
1.Investment period1-24 monthsAs long as you need
2.Disbursement periodAt least a monthAt least one bourse day
2.Ease of Registration and Disbursement
  • Require IDR 6000 for stamp duty for each registration and disbursement.
  • To register or withdraw deposits, some banks require you to do it offline.
  • No registration and disbursement fee.
  • The app or web can do all transaction activities.
3.Return
  • Fixed.
  • Maximum 5.63% pa before tax.**
  • Taxed for 20%.****
  • Not fixed, but tend to get higher from time to time.
  • 6.04% potential return.***
  • Tax-free.
4.Invested amountStart from IDR 8.000.000Start from IDR 10.000

 

And, that’s all the differences between bank deposits and money market funds. So, which one is more profitable? You decide.

 

If you find out this article useful and helpful, don’t hesitate to share it with your friends or colleagues, Moduers. Salam Moduit!

 


*) Disclaimer: all pictures and explanations relating to mutual funds in this article are only for illustration purposes, not investment recommendations.

**) Data were taken as of October 13, 2020

***) Based on the last 5 years, the average yield of market mutual funds in Moduit.

****) Based on Income Tax Article 4 Paragraph 2

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