Wanted: Cash accounts with decent returns. Investor focus in this unprecedented economic environment and capital market volatility remains attuned to using cash holding vehicles that provide liquidity, availability, safety, credibility and some, hopefully, some decent return.

The two alternatives (actually there are three but hiding cash under the mattress has risk too) featured most frequently in recent discussions are plain vanilla term/fixed deposits or money market funds.

Major investment managers with globally recognised names for stability, safety, and credit strength dominate money fund selections, typically in several currencies. Banking and other financial institutions offer fixed and term deposits with various rates of return and maturities in our local currency, and more recently, foreign currency term deposits can be obtained as well.

Investors tend to think of these two investments interchangeably, but money funds and term deposits are very different animals. Their investment structures are varied and fixed; for instance, money funds will follow prevailing market interest rates up and down, while term/fixed deposits have an interest rate that generally is the same for the duration. Money funds are held in segregated investment trust accounts, while fixed deposits reside upon the balance sheet of the financial institution.

Money funds are managed by investment professionals on a constant basis utilising very short-term bonds, commercial paper, floating rate notes, repurchase agreements and other financing vehicles. Vanilla fixed/term deposits sit and accumulate interest based on a pure math compounding basis, where the interest rate is guaranteed not to change for the nominated term, so you'll know exactly what your investment's worth.

The following chart comparison provides a quick overview. Note that individual money funds and term/fixed deposits offerings may vary, depending upon the money manager or financial institutions' product, time, volatility of markets, prevailing interest rates and so on.

To find out more and to add to your understanding of commercial paper, repurchase agreements and foreign currency exchange gains and losses - excellent source is Wickipedia and Investopedia

Next Investment article will explore the makeup of money funds.

Martha Harris Myron CPA CFP® TEP is a Certified Public Accountant and Financial Planner (US licences) and a Trust & Estate Practitioner (UK/Bermuda). She specialises in providing comprehensive financial solutions and investment advisory services to international and domestic private clients. Confidential e-mail can be directed to marthamyron@northrock.bm. The article expresses the opinion of the author alone. Under no circumstances is this advice to be taken as a recommendation to buy or sell investment products or as a promotion for financial plans. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.