What is a USD Money Market Fund account? Is it something you should consider putting your money into? In this post, you will get the answers to all your questions about the infamous United States dollar money market fund account. I will tell you what it is, what its benefits are, the two ways you can make money with this account, the risks, if any, and finally how and where to open the account.
So what is this USD Money Market Fund?
This is basically a money market fund account, just like the usual ones in Kenya shillings. The difference, as the name suggests, is that it invests in US dollars. The USD MMF shares most characteristics with the other usual money market funds. Especially in places where money is invested and there is liquidity. This means you can access your money on short notice. Also, note that the returns compound on a daily basis. To emphasize that, the interest compounds daily.
Benefits of using a USD MMF.
What makes the USD Money Market Fund stand out is the perceived stability of the USD as a currency. And this is in comparison to the highly depreciating local currency. Since our base currency is not the dollar, it means that the purchasing power of the dollar is still relevant. And this remains so even when our shilling loses value due to inflation. The inflation that will affect the United States dollar is not our local inflation but American inflation. Let me put it in perspective. Assuming you were earning in USD and you live in Kenya, the recent depreciation of the shilling does not really come to your disadvantage. But more to your advantage.
This is simply because just the other day, the USD was exchanged at a rate of 110 shillings per USD. At the moment, it is exchanging at above 150 per USD. So basically, if you are earning, say, 1000 USD and live in Kenya, your income technically grew from 110000 to 150000+. And this is without a pay raise, which brings me to the next point
How Do you earn or grow your money?
The USD money market fund allows you to earn in two ways. The first is through the normal interest that you earn on the invested money. The second is through something that I will refer to as capital gain. What I mean is that you invested while the dollar was 130, and at the end of the year, the dollar is at 165. Technically you made 35 Bob extra on each dollar, but you invested. It somehow behaves the way investing in shares behaves. This is a good thing for someone enjoying positive gain, but then this is the same place where the risk lies.
What’s the involved risk?
Perhaps this is the place that people do not consider carefully and end up losing the capital to a certain extent. Let me give you an example: if right now the USD is at 155 and then miraculously things stabilized in the country, the local currency grows in strength against the USD, and then it trades at 120 in one year. What just happened is that for every $1 you invested, you lost 35 local currency units. To make it very clear, if you had invested $1000 and this meant that you had invested 155,000 of your local units, then after a year your capital has depreciated down to 120,000, meaning that you lost 35,000.
So as much as you get interest, capital gains can still be a risk if the gains are negative. This is why the USD money market fund is best for someone who already owns dollars, so they don’t have to go through forex to have their money turn from the local currency to the USD for it to be invested. But if you intend to leave your money invested for a long time, then history is on your side. You might end up gaining in both of the two ways.
What do you need to open a USD Money Market Fund account?
As the name suggests, your money needs to be in USD to be invested, so you will need to open a USD currency bank account where you convert your local shillings into US dollars. Once you already have that, then with your identification documents, such as ID KRA Pin, all you need is the best company to open your USD money market fund, which brings me to the last point in today’s video. If you are learning so far, please share this post.
Where to open the USD Money Market Fund account.
The top performing USD Money Market Fund account providers are the likes of:
- Sanlam
- Cytonn
- Old Mutual
- Kuza
- NCBA
- CIC among many others.
If you have a question, please leave it in the comment section or use this link to reach out to me for assistance in opening your USD Money Market Fund.
Do you want to watch it instead?
To open a Money Market fund with Old Mutual, Click here. and for the Etica Money Market fund, click here.
