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Bond Funds vs Money Market Funds: Which Is Better for Your Money in Kenya?
Bond funds vs money market funds: compare returns, risk, tax and liquidity in Kenya, and see how both stack up against Treasury bills at current 2026 rates.
Money market funds have become Kenya's go-to place for savings. They're easy to join, pay interest daily, and let you withdraw within days. But a growing number of investors are asking whether they could earn more elsewhere, and bond funds are often the next stop.
The shift is visible in the numbers. Money market funds held about 90% of Kenya's unit trust assets at the end of 2021, according to the Capital Markets Authority. By June 2026, that share had fallen to about 49%, while fixed income (bond) funds had grown to about 24%.
So which is better? The short answer: money market funds are better for money you may need soon; bond funds can suit money you can leave invested for a few years. This guide explains why, compares returns, risk and tax at current 2026 rates, and shows how both stack up against buying Treasury bills directly.
What's the difference between a bond fund and a money market fund?
Both are collective investment schemes, or unit trusts, regulated by the Capital Markets Authority. Both pool money from many investors and lend it to governments, banks and companies. The difference is how long they lend for.
Money market funds
A money market fund invests only in short-term debt that matures within a year: Treasury bills, bank fixed deposits and commercial paper. Because these loans are short, their value barely moves. That's why money market fund balances grow steadily, with interest calculated daily, and why you can usually withdraw within a few working days.
Bond funds (fixed income funds)
A bond fund invests mainly in longer-term debt, such as government Treasury bonds and corporate bonds that run for several years. Longer loans usually pay higher interest. In exchange, the value of a bond fund rises and falls as interest rates change, so your balance can go down as well as up. In Kenya, these are often called fixed income funds or income funds.
Think of it this way: a money market fund is like lending money to someone until next month. A bond fund is like lending it for several years at a better rate, but if rates rise in the meantime, your loan becomes less valuable to anyone who might want to buy it from you.
Bond funds vs money market funds at a glance
Money market fund | Bond (fixed income) fund | |
What it holds | Treasury bills, fixed deposits, commercial paper (under 1 year) | Treasury bonds and corporate bonds (often several years) |
Main goal | Protect capital, pay steady interest | Higher income over time |
Risk level | Low | Low to moderate |
Can your balance fall? | Rarely | Yes, when interest rates rise |
How you earn | Daily interest | Interest plus changes in bond prices |
Access to money | Usually within a few working days | Usually within days, but you may sell at a loss |
Best time horizon | Days to about 1 year | About 2 to 5 years or more |
Best for | Emergency fund, short-term goals, cash waiting to be invested | Medium-term goals, steady income |
Neither is better in every situation. They solve different problems, and many investors use both.
Returns: what are money market funds and bonds paying in 2026?
Money market fund returns closely follow short-term interest rates, which in Kenya are anchored by the Central Bank Rate (CBR). On October 7, 2026, the Central Bank of Kenya kept the CBR at 8.75%, with inflation at 6.8% in September.
Investment | Current rate | Source |
Central Bank Rate | 8.75% | |
91-day Treasury bill | 8.77% | |
182-day Treasury bill | 8.89% | CBK auction, Oct 8, 2026 |
364-day Treasury bill | 9.04% | CBK auction, Oct 8, 2026 |
Average KES money market fund (gross) | 9.08% |
Money market fund yields vary widely between funds, from about 5% to 11% gross across the 27 funds Serrari tracks. Always compare yields on the same basis: before or after fees, and before or after the 15% withholding tax.
How money market rates follow the Central Bank Rate
Money market funds reinvest constantly in new Treasury bills and deposits, so their yields move with the CBR within weeks. That's why Kenyan money market fund yields have come down over the past two years. The CBK cut the CBR from 13% in August 2024 to 12.75%, the first of 10 consecutive cuts that took it to 8.75% by February 2026, where it has stayed since.
This is a big reason investors have moved money into bond funds. When rates are falling, a bond fund locks in today's rates for longer, and its existing bonds rise in value. A money market fund simply reinvests at each new, lower rate.
Don't forget inflation
What matters is your return after tax and inflation. With inflation at 6.8% in September 2026, a money market fund paying 9.08% gross, or about 7.7% after tax, earns a real return of only around 1% a year. That's fine for an emergency fund, but it won't grow your wealth much over time.
How bond fund returns work
Bond funds earn interest from the bonds they hold, which is usually higher than money market rates because the loans are longer. Their total return also includes changes in bond prices:
When interest rates fall, existing bonds paying higher rates become more valuable, so bond fund prices rise. Bond funds tend to outperform money market funds in this period.
When interest rates rise, existing bonds become less valuable, so bond fund prices fall. Money market funds tend to do better, because they quickly reinvest at the new, higher rates.
That's why the choice partly depends on where rates are heading, which nobody can predict reliably. We explain how falling rates affect money market funds and why MMF interest rates have declined.
Risks: What can go wrong with each?
Interest rate risk
This is the biggest difference between the two. The longer a bond's maturity, the more its price moves when rates change. A money market fund's holdings mature within months, so rate changes barely affect its value. A bond fund holding 10-year bonds can lose value quickly if rates rise.
Fund managers measure this sensitivity with a number called duration, shown on most bond fund fact sheets. As a rule of thumb, a fund with a duration of 4 years would lose about 4% of its value if interest rates rose by 1 percentage point, and gain about 4% if rates fell by the same amount. Money market funds have very short durations, usually measured in days, which is why their value barely moves.
Credit risk
Both types of funds can lose money if a borrower fails to repay. Funds that hold mostly government securities carry less credit risk than funds holding corporate bonds or commercial paper from riskier companies. Check a fund's fact sheet to see what it holds.
Liquidity risk
Money market funds are designed for easy access. Bond funds also let you redeem, but if you need your money when bond prices are down, you may have to sell at a loss.
What about short-term and ultra-short bond funds?
Short-term and ultra-short bond funds sit between the two. They hold bonds with shorter maturities, so they pay a little more than money market funds with less price movement than longer bond funds. But they are not the same as a money market fund: their value can still fall, and they may hold lower-quality debt to boost yield.
No money market fund or bond fund is guaranteed. Unlike bank deposits, unit trusts are not covered by deposit insurance, though their assets are held separately by an independent custodian.
Money market funds vs Treasury bills
Many money market funds hold Treasury bills, so a common question is whether to skip the fund and buy T-bills directly from the Central Bank of Kenya.
Money market fund | Treasury bill (bought directly) | |
Minimum | Varies by fund; the Ndovu Fund starts from KES 5,000 | Set by CBK per auction; check the current prospectus |
How you buy | App or fund manager, any time | CBK auction (weekly), via the DhowCSD platform or a bank |
Term | Open-ended; withdraw any time | Fixed: 91, 182 or 364 days |
Access before maturity | Usually within a few working days | Must sell on the secondary market or wait to maturity |
Interest | Accrues daily, usually credited monthly | Paid upfront as a discount |
Diversification | Spread across many instruments | One government security |
Fees | Management fee | No management fee |
Tax on interest | 15% withholding tax | 15% withholding tax |
Choose T-bills if you have a lump sum you won't need for a fixed period and want to lock in a known rate with no management fee. Choose a money market fund if you want to add money regularly, withdraw at any time, or don't want to manage auction dates and renewals.
Treasury bills vs money market funds for business cash management
Businesses face the same trade-off with a bigger emphasis on access. Cash for payroll, suppliers and taxes needs to be available on short notice, which suits a money market fund. Surplus cash with a known future use, such as a payment due in six months, can be matched to a T-bill of the same term. Some businesses keep operating cash in a money market fund and ladder T-bills for planned payments.
What about Treasury bonds?
Treasury bonds run for 2 years or longer, some for 20 years or more, and usually pay higher interest than T-bills. They also carry more interest rate risk if you need to sell before maturity. A bond fund gives you a diversified mix of bonds without having to buy each one at auction.
Money market funds vs savings accounts vs Treasury bills vs bond funds in 2026
If you're deciding where to keep cash in 2026, here's how the main options compare:
Option | Typical return (Oct 2026) | Access | Can value fall? | Tax on interest |
Bank savings account | Bank average deposit rate 6.84% (June 2026); varies widely by bank and account | Immediate | No | 15% |
Bank fixed deposit | Set by each bank; usually higher than savings | Locked for the term | No | 15% |
Money market fund | ~9.08% gross average | A few working days | Rarely | 15% |
Treasury bill (91 to 364 days) | 8.77% to 9.04% | At maturity, or sell early | Only if sold early | 15% |
Bond fund | Varies by fund; depends on bond yields and price changes | A few working days | Yes | 10% to 15%, depending on holdings |
Sources: CBK deposit rates for June 2026 as reported by The Kenya Times; CBK T-bill auction of Oct 8, 2026; Serrari MMF Index, Oct 13, 2026.
Bank deposits are protected up to a limit by the Kenya Deposit Insurance Corporation; money market and bond funds are not, though their assets are held by independent custodians. In return, money market funds currently pay more than the average bank deposit, with almost as much flexibility.
How are money market funds, bond funds and T-bills taxed?
For Kenyan-resident individuals, interest from all of these is taxed through withholding tax deducted at source. For qualifying interest, KRA treats this as a final tax.
Investment | Withholding tax on interest |
Money market fund | 15% |
Bond (fixed income) fund | 15% on interest distributed |
Treasury bills | 15% |
Treasury bonds (shorter-term, e.g. 5-year) | 15% |
Treasury bonds (10 years and longer) | 10% |
Infrastructure bonds | Tax-free |
Tax rates per KRA and CBK bond prospectuses (for example, FXD1/2019/5 and FXD1/2019/10).
Tax changes the comparison. A money market fund yielding 9.08% gross pays about 7.7% after 15% tax. A 10-year Treasury bond paying, for example, 12% keeps 10.8% after 10% tax, and an infrastructure bond keeps its full coupon. Bond funds that hold long-term and infrastructure bonds can therefore be more tax-efficient than money market funds, though how they pass this on depends on the fund.
For a deeper look, see our guide on whether index funds are taxed in Kenya [link once published].
US dollar options: USD money market funds vs bond ETFs
If you save in US dollars, perhaps because you earn abroad or want protection from the shilling weakening, the same choice applies in dollars.
USD money market fund. Holds short-term dollar debt and aims to keep your capital stable while paying interest. The Ndovu Fund (USD) starts from USD 50.
Bond ETF. An exchange-traded fund that holds a broad basket of bonds and trades like a share. Ndovu's "Safety Net" ETF tracks the US investment-grade bond market, including US Treasuries and corporate bonds, from USD 50 through its ETF range.
The trade-offs mirror the shilling versions. A USD money market fund is steadier and better for cash you may need soon. A bond ETF can earn more over time, but its price moves with US interest rates and can fall. In the US, there are also Treasury bill ETFs, which hold only very short-term government bills and behave much like a money market fund. Dividends from US-listed ETFs are also usually subject to a 30% US withholding tax for Kenyan investors, because Kenya has no tax treaty with the US.
New to ETFs? Read our guide to what an ETF is and how it works [link once published].
Bond fund or money market fund: which should you choose?
Start with when you'll need the money.
Your situation | Better fit | Why |
Emergency fund | Money market fund | Stable value and quick access |
Saving for something within a year (school fees, rent deposit, a car) | Money market fund or a T-bill matched to the date | Little risk of a loss when you need the cash |
Business operating cash | Money market fund | Access for payroll and suppliers |
Goal 2 to 5 years away | Bond fund, or a mix of both | Higher income; time to ride out price swings |
Regular income in retirement | Bond fund, alongside a money market buffer | Steady interest, with cash on hand for withdrawals |
Long-term growth (5+ years) | Consider equities or a multi-asset fund as well | Bonds alone may not beat inflation by much over the long run |
A simple approach many investors use: keep three to six months of expenses in a money market fund, put money for medium-term goals in a bond fund, and invest long-term savings for growth.
If your goal is long-term wealth, you may want to look beyond both. Our guides to what an ETF is [link once published] and special investment funds in Kenya explain options with higher growth potential.
How to choose a money market fund or bond fund
Once you've chosen the type, compare individual funds on these points, most of which you'll find on the fund's fact sheet:
What to check | Why it matters |
Regulation | Only invest in funds approved by the Capital Markets Authority. Here's how to spot a legitimate investment platform. |
Yield basis | Check whether the quoted yield is before or after fees and the 15% withholding tax. |
Fees | Annual management fees reduce your return; compare them across funds. |
Holdings | See the mix of government securities, bank deposits, and corporate debt. More corporate debt usually means more credit risk. |
Duration (bond funds) | A longer duration means bigger price swings when rates change. |
Track record and size | Longer histories and larger funds give more evidence of how the fund behaves, including in difficult periods. |
Access and minimums | Check the minimum investment, top-up amounts, and how quickly withdrawals are paid. |
How to start
Decide what the money is for and when you'll need it.
Choose the fund type using the guide above.
Compare a few funds on the checklist.
Open an account with a CMA-licensed fund manager or platform and complete the identity checks.
Invest and review periodically, especially when interest rates change.
Put your savings to work with Ndovu
Ndovu is licensed by the Capital Markets Authority as a Fund Manager and Investment Adviser. Pick the option that fits your goal:
Need a safe home for cash? The Ndovu Fund is a money market fund in KES (from KES 5,000) and USD (from USD 50). Try its calculator to see how monthly savings could grow.
Want dollar bond exposure? Explore the US bond ETF and other funds in Ndovu's ETF range, from USD 50.
Investing a larger sum for the long term? The Kibaba Special Fund is a CMA-regulated special fund that can hold bonds, equities, and other assets in KES or USD. Leave your details and the team will get in touch.
Not sure which fits? Join a free monthly live session or compare plans that include financial advice.
Disclosure:
Ndovu is a regulated Robo-advisory platform operated by Ndovu Wealth Limited (‘NWL’). NWL is a Fund Manager licensed by the Capital Markets Authority (Kenya).
The information provided on this platform and the products and services offered are intended solely for persons in regions and jurisdictions where such distribution and utilization are in accordance with local laws and regulations. Ndovu does not promote its services in regions where it lacks the necessary licenses; It is exclusively available to persons residing in countries where it holds a valid license or has regulated partners. Ndovu does not extend its services to citizens of the United States, Canada, Japan, and other restricted territories.
Disclaimer:
All ETF products are subject to risk, including country/regional, liquidity, and currency risks. Market prices of securities within the ETF may rise and fall, sometimes rapidly and unpredictably.
While ETFs provide diversification through exposure to a basket of securities, they do not eliminate the risk of loss. Diversification does not ensure a profit or protect against a loss. These are non-CIS products and are registered by the SEC.
Frequently asked questions
Is a bond fund better than a money market fund?
Not always. Bond funds usually pay more over time, but their value can fall when interest rates rise. Money market funds pay less but keep your capital stable. The better choice depends on when you need the money.
Can you lose money in a money market fund?
It's rare but possible, for example, if a borrower the fund lent to defaults. Money market funds hold short-term, generally high-quality debt to keep this risk low. They are not guaranteed or covered by deposit insurance.
Are Treasury bills better than money market funds?
T-bills have no management fee and lock in a known rate, but your money is tied up until maturity unless you sell early. Money market funds pay a similar rate after fees, let you add or withdraw money at any time, and spread your money across many instruments.
Why do bond funds lose value when interest rates rise?
New bonds start paying the higher rate, so older bonds paying less become less attractive and their prices fall. Bond funds hold those older bonds, so their value drops. The reverse happens when rates fall.
What is the difference between a government and a prime money market fund?
These are US fund categories. A government money market fund invests almost entirely in government securities; a prime fund also holds corporate debt for a slightly higher yield. In Kenya, check a fund's fact sheet to see its mix of Treasury bills, bank deposits, and commercial paper.
Is a bond fund the same as an income fund?
In Kenya, the terms are often used interchangeably. Both usually refer to fixed income funds that invest mainly in government and corporate bonds. Check the fund's fact sheet to confirm what it holds.
Sources
Serrari Group: Kenya's CIS market nears KSh1 trillion (Q2 2026 data), Sept 11, 2026
CBK: Prospectus for FXD1/2019/5 and FXD1/2019/10 (tax rates)
Ndovu pages: Money Market Funds, ETFs, Kibaba Special Fund, Pricing
Business Daily: CBK cuts benchmark rate for 10th straight time, to 8.75% (Feb 10, 2026)
The Kenya Times: CBK interest rates, June 2026 data (July 29, 2026)