Money Market Fund — Alternative to Deposits

What is a money market fund, how it works, why it's better than a bank deposit, and how to choose one.

A money market fund (Keren Kaspit) is a type of mutual fund that invests in very short-term, low-risk debt instruments like government bonds and bank deposits. In Israel it is commonly used as a parking spot for cash that earns a better return than a regular bank savings account.

How a Money Market Fund Works

The fund pools money from many investors and buys short-term securities — typically government T-bills and high-grade corporate notes with maturities under one year. The return is modest but stable, closely tracking the Bank of Israel's benchmark interest rate. Your money remains highly liquid — you can withdraw within one to two business days.

When to Use a Money Market Fund

A Keren Kaspit makes sense when you have cash you will need in the next few months to a year and want it to earn something without taking real market risk. Common uses include holding an emergency fund, parking money between investments, or saving for a short-term goal like a vacation or a car.

Returns and Fees

Returns generally hover near the Bank of Israel interest rate minus the fund's management fee. As of recent periods, annual returns have ranged from 3-4% depending on rate conditions. Management fees are typically low — around 0.1% to 0.2% — because there is not much active management involved.

Money Market Fund vs. Bank Deposit

The advantage over a fixed bank deposit (Pikadon) is liquidity — you can access your money anytime without a penalty. The tradeoff is that returns may fluctuate slightly. For most people with short-term savings, a Keren Kaspit offers a better balance of return and accessibility.