In the pursuit of financial growth, many Kenyans are exploring savings and investment options like Saccos and Money Market Funds (MMFs). While both are useful financial tools, using one to fund the other—specifically taking a loan from a Sacco to invest in an MMF—can be a costly mistake.
Understanding the Numbers
Let’s break it down:
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Sacco loan interest rates typically range between 10% and 15% per annum.
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Money Market Fund returns currently average between 9% and 11% per annum.
At face value, it might seem like a good idea to borrow money cheaply and invest it to earn returns. However, the math doesn’t work in your favor in this case.
If you borrow at 13% and invest in an MMF earning 10%, you’re operating at a net loss of 3% annually. That means your investment isn’t even covering the cost of the loan, let alone giving you any profit.
Why It’s a Losing Strategy
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Negative Return on Investment
You’ll owe more in interest to the Sacco than you’ll earn from the MMF. This creates a financial leak, slowly eroding your capital instead of growing it. -
False Sense of Investing
Borrowing money to “invest” in an MMF may feel like you’re growing your wealth—but in reality, you’re subsidizing a loss. -
Risk of Penalties and Loan Default
If MMF rates drop or Sacco interest rises, the gap widens even further. Meanwhile, your loan repayment obligation remains fixed, risking penalties or even default.
The Smarter Approach
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Use your own savings—not borrowed money—for low-risk investments like MMFs.
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Sacco loans should be used for productive assets or ventures that have the potential to generate higher returns than the cost of borrowing (e.g., starting a business, buying equipment, land, or funding a course).
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Consider MMFs as a parking lot for idle funds, emergency savings, or short-term goals—not a speculative investment with borrowed capital.
Bottom Line:
If you take a Sacco loan at 12% interest and put it into an MMF earning 10%, you’re not investing—you’re paying to save. Always match your financing method with the expected returns of your investment. Otherwise, you’ll end up losing money in the name of growing it.
