Three Places Cash SitsEasy
A deposit, a money market fund and a short government bond all look like holding cash. They differ in who owes you, who prices it, and how fast you can leave.
3 min read · 617 words
Three structures, one intention
- A deposit is a loan to a bank, repayable on demand. The bank owes you a number; there is no market price.
- A money market fund is a share of a portfolio of very short-dated instruments. You own a slice of what it holds, and its value is computed from them.
- A short-dated government bill is a direct claim on a government, with a known repayment date and a market price in between.
All three are used for the same reason — money that must be available and must not move much. They are not variations of one thing.
What actually differs
| Deposit | Money market fund | Short government bill | |
|---|---|---|---|
| Who owes you | The bank | Nobody — you own holdings | The government |
| Protected? | Up to a statutory limit | No — it is an investment | No scheme; it is the sovereign |
| Who sets the rate | The bank | The market, passed through | The market, at purchase |
| Price between dates | None | Computed daily | Quoted, and moves |
| Getting out | On demand | Usually same or next day | Sell in the market |
| Bad week looks like | The bank is in trouble | Redemptions and possibly fees or gates | A small price move; hold to maturity and it repays |
The three questions that separate them
- Who is the claim against? A deposit is bank credit — which is why Northern Rock and SVB are on this site. A bill is sovereign credit. A fund is neither: it is a claim on assets held for you, which is why a fund manager failing is a different event from a bank failing.
- Who sets the rate, and how fast does it move? A bank sets its deposit rate and may change it slowly when market rates move. A money market fund's yield follows the market almost immediately, in both directions, because it is holding the market. That difference is the whole reason money moved between the two in 2022 and 2023.
- Is there a price? A deposit has no price and therefore no visible volatility, which is not the same as no risk — see is volatility the same as risk. A bill has a price that moves and a date on which it repays in full.
What each one does under stress
- Deposit. The protection scheme covers up to a limit per bank, per depositor. Above that limit you are an unsecured creditor. The limit is a statutory number and worth knowing precisely for the jurisdiction you are in.
- Money market fund. Regulated versions can impose liquidity fees or gates when outflows are heavy — written into the rules for exactly the reason set out on can a fund stop me. A fund holding only government bills behaves differently from one holding bank paper, and the label often does not distinguish them.
- Government bill. If held to maturity, the return is known at purchase. If sold early, the price is whatever the market says — which for a bill maturing in weeks is close to par, and for one maturing in a year is less close.
What to read before choosing between them
- For a deposit: the protection limit, and whether the account is with one legal entity or several sharing a limit.
- For a fund: what it actually holds — government only, or bank and corporate paper — plus its liquidity terms and its fee. Its factsheet says all three.
- For a bill: the maturity date, and whether you can hold to it.
The cash ladder page is about arranging several maturities; this one is about what the individual holdings are. Neither says which to use — that depends on facts about a person that this site does not have.