Bank deposits vs money market funds: deposit insurance and risks

Two places to keep cash

A bank deposit is money you lend to a bank: the bank promises to repay it with the interest agreed. A money market fund is an investment fund: you buy units, and their value follows the short-term investments the fund holds. Both can earn interest-like returns and let you take money out quickly, but they are protected in very different ways.

Deposit insurance: what it covers

Deposit insurance repays depositors, up to a limit, when a bank fails. Nigeria’s deposit insurer, the NDIC, describes it as “a system established by government to protect depositors against the loss of their insured deposits placed with insured financial institutions in the event that a member institution is unable to meet its obligations to depositors.” Depositors do not pay for it: Kenya’s KDIC says “The annual premium for this protection is paid into the Fund by the banks that are members of KDIC”, and in Canada “Coverage is free and automatic”.

The limits below are those each scheme published on 18 October 2026. Limits change, so check the scheme’s own website.

Nigeria (NDIC)

• “₦5,000,000 per depositor in Deposit Money Banks (including Non-Interest Banks) and Primary Mortgage Banks”;
• “₦2,000,000 per depositor in Microfinance Banks (MFBs)”.
• Accounts at different banks are insured separately, each up to the limit. The cover includes the principal and the interest accrued up to the day the bank closes.
• Savings, current, domiciliary and term deposits are covered; insider deposits and deposits pledged as collateral are not.

Kenya (KDIC)

• “The current Protection or Coverage limit is Kshs. 500,000.”
• It is paid only when the Central Bank of Kenya places a bank in liquidation, not while the bank is in receivership. Balances above the limit are paid later, as the failed bank’s assets are recovered.

South Africa (CODI)

• The Corporation for Deposit Insurance, operational since 1 April 2024, covers qualifying depositors “up to a maximum amount of R100 000 per depositor per bank”, principal and interest included.
• Covered: current, savings, term and notice accounts, tax-free savings accounts, and Islamic Wadi’ah, Qard and Murabaha products.
• Not covered: “accounts where the capital amount is not guaranteed and not repayable at par, such as investment accounts in unit trusts and shares”, and electronic money products.

Canada (CDIC)

• Each category of deposit — for example deposits in one name, joint deposits or deposits in a Tax-Free Savings Account — “is insured separately up to $100,000, including principal and interest.”
• Eligible: deposits in Canadian or foreign currency, GICs and other term deposits. Not eligible: mutual funds, stocks and bonds, ETFs and cryptocurrencies.

For Mexico, Morocco and the West African Economic and Monetary Union, we could not read the official deposit insurance pages: they showed a bot check or did not load. Wherever you live, ask your central bank whether your bank belongs to a deposit insurance scheme and what the limit is.

Money market funds

Canada’s Ontario Securities Commission defines a money market fund as “A fund that invests in short-term, low-risk investments such as treasury bills, bonds and bankers acceptances.” Kenya’s Capital Markets Authority explains what you own: units “that represent his/her pro-rata share of the pool of fund assets”. It adds that a fund’s performance depends on the market value of what it holds and therefore fluctuates, and that “The yield for money market funds and the price for the other funds is calculated daily.”

EU law spells out the difference from a deposit. Under the EU money market funds regulation, every marketing document must state “that the MMF is not a guaranteed investment”, “that an investment in MMFs is different from an investment in deposits, with particular reference to the risk that the principal invested in an MMF is capable of fluctuation”, and “that the risk of loss of the principal is to be borne by the investor.” In times of severe market stress, some types of fund may also charge liquidity fees on withdrawals, limit them, or suspend them “for any period up to 15 working days”. These are EU rules, but the point holds everywhere: a money market fund is not a deposit.

Deposit insurance does not cover fund units. South Africa’s CODI excludes investment accounts in unit trusts, and Canada’s CDIC lists mutual funds and ETFs as not eligible. Ask who holds the fund’s assets (its trustee or custodian) and whether an investor compensation scheme applies; our guide on investor compensation schemes explains what those cover.

Deposit or fund: side by side

• What you own: a deposit is a claim on the bank; a fund unit is a share of a pool of investments.
• Return: a deposit pays the rate agreed, fixed for the term of a fixed deposit; a fund’s yield changes every day.
• Can it fall? A deposit balance does not fall, unless the bank fails and you hold more than the insured limit; a fund’s unit price can fall.
• Protection: deposits are insured up to the limit; fund units are not covered by deposit insurance.
• Access: check whether a fixed deposit can be broken early and at what cost, and how many days a fund takes to pay you.

Interest and inflation

Whatever you choose, compare the rate with inflation. A 10% return with 15% inflation still loses buying power. The real return calculator shows the effect, and the T-bill yield calculator turns a treasury bill price into a yield you can compare with a deposit rate.

Before you choose

1. Check that your bank is licensed and belongs to the deposit insurance scheme, and remember that the limit applies per depositor and per bank.
2. For a fund, read what it invests in, what it charges and how long withdrawals take.
3. Check that the fund and its manager are licensed by the securities regulator.
4. Find out how interest and fund returns are taxed where you live.