Have a question about your personal investments? No matter how simple or complex, you can ask it here.
This is a very basic question:
ING right now is offering 0.75% interest and no fee.
Money Market accounts have an e.r. (Vanguards went down to 0.16 today).
Are the books I am reading just a couple of years out of date, and the MM are no longer the best place to keep your emergency stash? None of the books even mention online banks.
What am I missing?
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You're not missing anything -- online banks are the better choice. You get a better return and FDIC insurance.
MM = return-free risk.
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you are not missing anything. MM accts from mutual funds have to invest in very short term highly rated securities. These securities pay hardly anything - thus the low yield. Don't focus on mutual fund ERs just the yield. Bank Money Mkt Deposit account currently pay more and don't show any ER because it isn't required. So compare the money markets on their yield. On line bank money markets, savings and even interest checking often pay higher (yet still pretty low) yields. My advice is keep as little as possible in mutual fund money markets. When set up moving money to Vanguard from banks is only a few clicks away.
Mutual fund money markets used to be much superior to bank products. Maybe in the future that will return - but after 2008 money markets were required to have even higher grade investments. There is also talk of regs preventing them from keeping the NAV at $1. Vanguard should offer a bank money market deposit account.
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You're not missing anything. These are unusual times. From 1971 until perhaps 2008, thirty-seven years, money market funds made noticeably more than bank savings accounts--and that definitely includes banks' so-called "money market deposit accounts."
Then things changed. The books are indeed out of date.
Good FDIC-insured bank accounts of various kinds pay in the ballpark of 1% more than money market funds. Simple as that.
The reason why money market funds stay in business currently, beside convenience and laziness and bundling (automatically getting one as a brokerage sweep account) is that FDIC insurance is limited to $250,000 (per "account ownership" per bank). This is one case where the little guy has access to an investment that is effectively useless to the big guys. It isn't practical for those who need to hold much more than $250,000 in near-cash to do it in FDIC-insured bank accounts, so money market accounts are one of the alternatives.
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My emergency fund is not only at ING, but in a checking account, because Orange checking > $100K pays more than Orange savings. If I was deciding where to put money right now, I'd put it in Ally Bank, @ 0.95%.
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My Ally account pays more than my Bank of America 18 month CD. I can't pull it out early or they'll charge me like $30. Just another of the investing mistakes I made before Educating myself!
And MM accounts are even worse now
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Barclays online savings are at 1.00%.
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