Put money that you will need

In this advice column Rick Briers-Danks from Veritas Wealth answers a question from a reader who wants to know where to put short-term savings.

Q: I have about R100 000 which I would like to invest with little or no risk whilst keeping up with inflation at the same time. This is the money for my wedding, which I anticipate will be happening in the next two years.

My research tells me that a money market account is the appropriate investment tool. Would you agree? If so, how do I go about choosing one, there are so many available?

Firstly, well done for accumulating this money towards your wedding. It shows serious determination and commitment to a savings plan.

As your investment time horizon is only two years we would agree that using some form of money market is the appropriate investment tool. This is because you can’t afford the risk of too much volatility in the short term.

The main disadvantage of any money market investment, however, is that it probably won’t keep up with inflation over the longer term. For this reason, money market investments are often opened by those who are looking for an interim place to “park” a sum of money for a deposit on a home for example or saving for a wedding in your case.

Having established that the money market is probably the appropriate investment mandate for the funds the next question is which type to use. Not many people are aware but there are two types of money market investments – money market accounts and money market funds.

Money market account

A money market account is offered by a bank, which is a deposit-taking institution. It is an alternative to a savings account or fixed deposit.

Unlike a fixed deposit there is no defined investment term so funds can be invested indefinitely and the rate of return will vary depending on the deposit balance. It is likely to return a slightly lower rate of interest than a fixed deposit account mainly because it is more liquid with quicker access to your funds.