Euro vs. Dollar MMF: which one should I choose?

Many of you have asked us how to choose between the euro money market fund and the dollar money market fund.

The goal of this article is to outline the key points you need to know to understand the differences between these products and make an informed decision.

Understanding How the Two Funds Work

• Euro Money Market Fund 🇪🇺: your cash is invested in Treasury Bills issued by Eurozone countries considered “systemic,” namely Germany and France—countries without which the single currency could not exist.
• Dollar Money Market Fund 🇺🇸: your cash is systematically converted into dollars and invested in Treasury Bills issued by the U.S. federal government.

In both cases, you can view the full portfolio of Treasury Bills in real time: here for the euro fund and there for the dollar fund.

Compare Interest Rates

The yield of a money market fund is directly tied to short-term interest rates in the respective currency.

• At the moment, interest rates in the United States are higher than those in the Eurozone, which is why the dollar fund offers a higher yield. Historically, this has often been the case.

• However, for those whose reference currency is the euro, a higher yield in dollars must be considered alongside the exchange rate risk.

The Impact of Exchange Rate Risk

Spiko allows you to deposit or withdraw euros into the dollar fund. However, by choosing to deposit euros, you expose yourself to EUR/USD exchange rate fluctuations, as the fund immediately converts euros into dollars and does not hold them in euros.

• Euro Appreciation: If the euro strengthens against the dollar between your deposit and withdrawal, your dollar-denominated gains will shrink once converted back into euros. In the case of a sharp euro appreciation during this period, your returns could even turn negative.
• Dollar Appreciation: On the other hand, if the dollar strengthens, your gains in euros will increase.

The charts below illustrate both scenarios.

Conclusion: What to Choose?

Always ask yourself what your goals are and what your investment horizon looks like.

• Security and Stability: Choose the euro money market fund if your reference currency is the euro and your main goal is to preserve your capital.
• Diversification and Yield: If you're looking to diversify your savings and are willing to accept exchange rate risk, the dollar money market fund is an interesting option.