Money market: definition

Money market: definition and how it works in Switzerland

The money market mainly concerns banks, financial institutions and central banks. Transactions involve short-term instruments such as interbank deposits, repo transactions or short-term money market instruments.

In Switzerland, the Swiss National Bank (SNB) directly influences the money market through its monetary policy. By adjusting its policy rate, it affects the cost at which banks lend money to each other. This mechanism then has an impact on the rates offered to private individuals and companies.

The money market therefore helps to ensure the liquidity of the banking system. It allows financial institutions to balance their very short-term liquidity needs.

Money market and SARON mortgage

In the field of mortgage lending in Switzerland, the money market is directly linked to the SARON rate. SARON (Swiss Average Rate Overnight) is a reference interest rate based on actual transactions on the Swiss money market.

In practice, if you choose a SARON mortgage, your interest rate will move in line with conditions on the money market. When short-term rates rise (for example following a decision by the SNB), your interest burden may also increase. Conversely, if rates fall, you benefit from a reduction.

Difference between the money market and the capital market

As a borrower, it is important to distinguish between the money market and the capital market.

The money market relates to short-term financing (less than one year).

The capital market covers medium- and long-term financing (bonds, long-term fixed-rate mortgages, shares).

This distinction is important for you as a borrower:

A fixed-rate mortgage over 10 years is more strongly influenced by the capital market.

A SARON mortgage depends directly on the money market.

Both markets react to the same macroeconomic factors (inflation, growth, monetary policy), but with different dynamics.

Why the money market influences your affordability

The level of rates on the money market indirectly affects your financial capacity when you apply for a mortgage. Even though banks often use a higher theoretical rate to assess your affordability, actual market conditions influence the terms they offer.

When short-term rates rise sharply, SARON mortgages become more expensive and can reduce your budget margin. Conversely, in periods of low interest rates, they can represent a competitive and flexible solution.