Money market funds, which investors generally use as a short-term “parking place” for cash, paid an average of 7.76 percent in interest after fees at the end of the fourth quarter of last year, about one percentage point more than CPI inflation of 6.8 percent (December 2016).

The funds saw assets under management grow from R267 billion in the first quarter of 2016 to R290 billion by the end of the year. Investors include companies and individuals.

Ian Ferguson, the head of distribution for cash solutions at Nedgroup Investments, says a yield of 7.76 percent is more than investors would have received if they had kept their cash in a bank call account, “even assuming the best call rate of 6.75 percent, which, in South Africa, is available only to top corporates."

Money market accounts also afforded them the same liquidity as a call account.

Ferguson says the inflows into money market funds, particularly the corporate inflows, are indicative of the increasing pressure on company treasurers to protect and optimise cash reserves in the face of rising investment volatility and costs.

“In the current environment where there is poor confidence, many corporates are withholding cash until the economic outlook becomes clearer. However, a difference of one or two percent on a large cash reserve is significant, particularly in times of such low earnings growth,” Ferguson says.

“Money market funds, with higher yields, high credit quality and excellent liquidity, offer a lucrative and convenient alternative to call accounts and operate in a highly regulated environment,” he says.

Asked where interest rates may be headed in 2017, Ferguson says he expects them to move sideways, at least until the Reserve Bank's monetary policy committee meets in May.