Financial Expert Affirms Money Market Funds Remain Best for Short-Term Savings Despite Rate Cuts
In a new financial column series, advisor Tomer Veron addresses the relevance of money market funds for short-term savings amid recent economic shifts. Despite four interest rate cuts within a year and inflation easing, Veron maintains that money market funds still serve as an excellent place to hold funds intended for short-term use, such as emergency cushions or upcoming vacations. He emphasizes that while nominal yields on these funds have dropped from around 4% to about 3%, the real return, adjusted for inflation, remains relatively stable, preserving purchasing power.
Veron explains that short-term money should prioritize low risk, liquidity, and cost-effectiveness rather than high returns, as time constraints limit risk tolerance. He contrasts money market funds with bank deposits, noting that funds benefit from a tax advantage by taxing only gains above inflation at 25%, whereas deposits face a 15% tax on nominal gains. Although this advantage diminishes as inflation falls, it still exists.
He also discusses the current banking environment, where banks often reduce deposit rates in anticipation of official rate cuts, sometimes before they occur. For example, Bank Hapoalim offered a median one-year deposit rate of about 3% as of June 2025, with smaller banks like One Zero and Bank of Jerusalem providing more attractive rates. However, liquid deposits typically offer even lower yields, making money market funds more competitive.
Veron urges savers to reconsider why their money is in short-term instruments and warns against chasing last year’s higher yields by taking on more risk. He stresses that the primary goal of short-term savings is to maintain liquidity, safety, and purchasing power rather than outperforming the stock market. Finally, he advises consumers to negotiate with banks rather than accepting default offers and to focus on how well their money fulfills its intended role rather than solely on returns.