Deposit vs. Money Market Fund vs. T-BillStart here

Four ways to hold cash, each trading one specific comfort for one specific improvement. The differences are small in normal times and decisive in a bank failure.

Cash is not one thing

• Every option below is called "cash" and each is a different claim on a different party with a different protection.
• The ladder runs from bank credit to sovereign credit. Each step up trades one comfort — insurance, simplicity, instant access — for one improvement: yield, credit quality, or speed of rate pass-through.
• In normal conditions the differences are worth tens of basis points. In a banking crisis they are worth everything, which is the only reason to understand them in advance.

The comparison

The deposit beta problem

• Banks pass on a fraction of rate rises, and slowly. Pass-through of 20–50% on instant-access accounts is ordinary, so a 4% policy rate can sit alongside a 1% savings rate for years.
• Back-book pricing compounds it: new customers get the advertised rate while existing balances stay on an older, lower one. The gap is a deliberate and large source of bank margin.
• Money market funds pass through almost fully within weeks, because they hold short instruments that reprice at every maturity. In a rising-rate environment that difference is the main argument for the fund.
• When rates fall the advantage reverses — funds pass cuts through immediately while a fixed-term deposit keeps the old rate. The instrument that wins depends on which direction rates move next, which nobody knows.

What each one does in a bank failure

• Below the insurance cap: a deposit is genuinely safe, and the payout takes days to weeks — cover is not liquidity. Use the coverage calculator, and check licences rather than brands.
• Above the cap: an unsecured claim on that bank, ranking behind insured depositors. This is where the ladder stops being academic.
• A money market fund is not covered by deposit insurance and does not need to be — it holds a diversified portfolio, not a claim on one bank. Its own risk is a run on the fund, which is why "breaking the buck" has its own name.
• A T-bill removes bank credit entirely. In a systemic banking crisis it is the asset everything else is fleeing toward, which is precisely when its price rises.

Where each genuinely fits

• Deposit for the emergency buffer and near-term spending, sized below the insurance cap per institution. Its job is instant access, and judging it on yield misreads the product.
• Term deposit for money with a known date, when you are willing to fix the rate. It wins if rates fall and loses if they rise.
• Money market fund for larger balances above insurance caps and for fast rate pass-through — the corporate treasury answer, increasingly available to individuals.
• T-bills for the largest balances and for anyone who wants no bank credit at all, accepting the operational work of buying and rolling them.
• A ladder across several is the usual practical answer, and the bill-yield and effective-yield calculators make the comparison like-for-like.

The comparison everyone forgets

All four are nominal instruments, and at any positive inflation rate all four lose purchasing power in real terms. The purchasing-power calculator puts a number on it. Cash is the right instrument for liquidity and the wrong one for a long-horizon real goal — the risk did not disappear, it moved.