Why Are Bogleheads Using Money Market Funds?

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BTownInvestor
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Why Are Bogleheads Using Money Market Funds?

Post by BTownInvestor »

I'm confused about why so many people here are using money market funds for their emergency fund instead of a high-yielding online savings account. I'm using Dollar Savings Direct at 4% and even though I'm in the 33% federal tax bracket (5% state), I'm earning much more than I seemingly would in a Vanguard money market fund - even a tax-exempt one (which currently has a compound yield of .74%). Am I missing something?
Stevewc
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Post by Stevewc »

Thanks for the tip.
I've never heard of this bank.
How long have you banked with them and how often do the rates jump around?
Wondering if this might be a teaser rate to get you in the door.
Steve
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BTownInvestor
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Post by BTownInvestor »

No problem. I've been with them since I read this article on CNN's website:

http://money.cnn.com/2008/08/25/pf/doll ... /index.htm

They started at 3.75% and have gone up to 4%, staying there even while the Fed has been slashing rates and other banks have been lowering rates. Apparently this is the new "Emigrant Direct" - Emigrant basically let Emigrant Direct languish with low rates and created Dollar Savings Direct with the market-leading rates that Emigrant Direct used to have. Not sure why they did this, but....hey, whatever, I'll take it. Since CNN did a story on it and it's FDIC insured, I feel pretty good about it.
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Ted Valentine
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Re: Why Are Bogleheads Using Money Market Funds?

Post by Ted Valentine »

BTownInvestor wrote: I'm earning much more
How much more are you talking about in real after tax dollars per month?

How much time do you spend looking for the best rates, opening new accounts, and tracking everything?

Is it really worth it to jump around to newXYZ.com online bank when you could just choose a money market fund that is one of the the top historical performers and use your time more effectively?
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BTownInvestor
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Post by BTownInvestor »

Given my tax rate, at dollar savings direct (4% before tax) I'm at 2.48% after tax - just barely keeping up with inflation, roughly.

Compare that with .74% after tax in a money market account like VMSXX - nowhere close to keeping up with inflation.
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Rager1
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Post by Rager1 »

From the Dollar Savings Direct website:

With a Dollar Savings Account, you will earn a variable Annual Percentage Yield on your savings.

And,

Open today and start earning interest that will really add up. While the APY may change at any time due to market conditions, you are assured to earn high interest with a Dollar Savings Account.

(Bold added)

Ed
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BTownInvestor
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Post by BTownInvestor »

(And yes, I'm am pretty neurotic about chasing rates, I'll admit. But hey, little things add up over decades, no?)
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Re: Why Are Bogleheads Using Money Market Funds?

Post by Ron »

BTownInvestor wrote:I'm confused about why so many people here are using money market funds for their emergency fund instead of a high-yielding online savings account. I'm using Dollar Savings Direct at 4% and even though I'm in the 33% federal tax bracket (5% state), I'm earning much more than I seemingly would in a Vanguard money market fund - even a tax-exempt one (which currently has a compound yield of .74%). Am I missing something?
Probably you are doing well, for your situation.

First of all, I don't have an "emergency fund", since I'm (and my wife will be within 12-18 months) retired.

For me, an emergency fund is primarily what I had when I was gainfully employed, and needed my "paycheck" to live.

Today, I (and my wife, in preperation for retirement) have more than a few years in both VG and Fidelity MM accounts. Why? Well, they are tax deferred, they represent "profits" against accounts that showed a profit in the past, and while they earn a bit less than other MM alternatives, are easy to track/manage.

In addition, I use my MM accounts (since I am retired) to feed my Fidelity IMA (Income Management Account) that is lined to my RIP (Retirement Income Plan) to see if I'm on track for my retirement expenses, vs. plan.

Again, if I were still accumulating (e.g. working) or I was "on the edge" for retirement income, I would look for alternatives. However, I'm doing quite well (thank you) and I don't need to chase returns on MM accounts.

Anyway, that's the answer from a retiree. Others will have other responses, based upon their indivudial situations. None are wrong, IMHO. It all depends what your situation in life is.

- Ron
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Re: Why Are Bogleheads Using Money Market Funds?

Post by PaPaw »

BTownInvestor wrote:I'm confused about why so many people here are using money market funds for their emergency fund instead of a high-yielding online savings account.
More return is usually correlated with higher risk. Since the highest priority for my emergency funds is for them to be there when I need them, I have chosen to stay with a company I trust (Vanguard) and in a fund that is as safe as I can find (Treasury Money Market). I take more risk with other parts of my portfolio that I do not plan on drawing from for a while. I guess it is just like when I make a purchase, I do not always buy the lowest price item but the item that gives me the best overall value (combination of selling price, effect in use, quality and service). I'm retired.

... PaPaw
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BTownInvestor
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Post by BTownInvestor »

PaPaw - but a savings account is FDIC insured. Where's the extra risk?
mark500
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Post by mark500 »

Emigrant Bank of New York has a 1 star rating according to bankrate.com.
Other Emigrant banks in Manhattan, Long Island, Brooklyn, and Bronx are 3 stars. I don't know what to make out of that.
PaPaw
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Post by PaPaw »

BTownInvestor wrote:PaPaw - but a savings account is FDIC insured. Where's the extra risk?
I think the answer to your question is in what comes after the first sentence of my post (i.e. it is not just risk that I made my decision on). If you see it differently for your circumstances and are happy with what you are doing - fantastic and best wishes.

.... PaPaw
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BTownInvestor
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Post by BTownInvestor »

Makes sense, PawPaw - thanks for the thoughts.
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Post by nisiprius »

Oddly enough, I just moved $6000 from my Fidelity money market account (1.67% 7-day yield) in taxable to my ING Direct savings account (2.5%), and have opened a Roth IRA at ING Direct in preparation for doing the same from my Roth.

I don't usually chase rates--you'll notice that I can't be bothered to do better than ING Direct's 2.5%. I'm used to the idea that money market mutual funds do better than bank rates. I've been stalling and stalling, hoping that the difference would resolve it self--sourly, I've assumed it would resolve itself by ING Direct lowering its rate--but it hasn't happened, so I've gotten motivated to do it for The Principle Of The Thing.

When I get the Roth moved, why, I should be making, easily, $100 a year more! A big C! A century note! A Benjamin! we're talking a hundred smackeroos here.... if the rates persist of course.

Now all I need to do is find maybe 999 other brilliant financial moves like that and, hey presto! I can make up the last years' losses in no time.
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Post by zeusrock1 »

I have my emergency money with Dollar Savings Direct too. I've only been using for a few months when I dumped PayPal because of the low money market rate. I use it to try and sock away any extra money I have from my checking account every month. The online transfers seem to take a few days, but it doesn't bother me. I hope the rate stays up there as I don't want to rate chase.
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Post by n42 »

I have my emergency money in I Bonds. It didn't get there overnight, rather gradually over the years, as it wasn't money in use, but rather emergency funds, that so far, I've never had to use.
n42
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Post by digit8 »

I use the Vanguard Treasury MM because it works well with my emergency fund strategy. Every month a set amount goes from my regular checking to the MM. When that account goes over my emergency fund "goal"-which is every month right now- I transfer the overage to a mutual fund.
The ease of the process, to me, far outweighs any interest to be gained from throwing an extra bank into the mix.
Plus, as it is I currently deal with 3 financial entities: my regular bank, Fidelity for my 401k, and Vanguard. I don't trust myself to juggle much more than that accurately.
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Post by Ron »

digit8 wrote:I don't trust myself to juggle much more than that accurately.
Great. You know your limitations, and set your path to address them.

Kudo's to U....

- Ron
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Post by deerhunter »

[quote]Oddly enough, I just moved $6000 from my Fidelity money market account (1.67% 7-day yield) in taxable to my ING Direct savings account (2.5%), and have opened a Roth IRA at ING Direct in preparation for doing the same from my Roth.[quote]
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Post by msi »

Part of the reason is because I buy Vanguard funds just by exchanging from my MM into the new fund, that way I don't have to wait for the transfer to take place.

So it's easier just to dump new money into the MM and then just replenish it to keep the amount I need for my emergency fund.

I agree that the yields are crap, though. Didn't used to be.
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Post by woof755 »

I would be leery of any checking or money market account offering 4X the market rates.

If it sounds too good to be true...
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Re: Why Are Bogleheads Using Money Market Funds?

Post by tibbitts »

BTownInvestor wrote:I'm confused about why so many people here are using money market funds for their emergency fund instead of a high-yielding online savings account. I'm using Dollar Savings Direct at 4% and even though I'm in the 33% federal tax bracket (5% state), I'm earning much more than I seemingly would in a Vanguard money market fund - even a tax-exempt one (which currently has a compound yield of .74%). Am I missing something?
What you're missing is the amount of work required and, although I hate to keep saying it, the possibilty that with every transaction, something will go wrong. I've chased the highest rate and changed banks six times now. Every time I've had to transfer from savings to checking, set up a new account, then set up online access and the initial transfer (used to require USmailing a check), then transfer from checking to the new savings account. Whether it's worth it depends on the amount you have in savings, combined with the rate differential, and how long you think your current high-yielding account will still be high-yielding. Six times now, my high-yielding account hasn't remained among the highest yielding.

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Post by exeunt »

Unless you're dealing with large sums, it's not worth the time and effort to switch banks.
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Post by tfb »

I for one am not interested in giving out my SSN to many places. A place has to be really compelling for me to bite. It also has to demonstrate some basis it's not a teaser. I'm not interested in selling my SSN for a year or two worth of higher interest. In the case of Dollar Savings, I don't see any reason it will remain competitive five years from now.
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Post by jj987 »

msi wrote:Part of the reason is because I buy Vanguard funds just by exchanging from my MM into the new fund, that way I don't have to wait for the transfer to take place.

So it's easier just to dump new money into the MM and then just replenish it to keep the amount I need for my emergency fund.

I agree that the yields are crap, though. Didn't used to be.
As stated above OP, I am with VG Prime MMF for this reason. Also it is one less 1099 I have to mess with at the end of the year.

As for rate chasing, yes all the little bits do add up over time, but I for one can find better things to do with my time than to looking for who has .25% rate higher. Then you have the process of moving your $ all over creation, just to move it again in 6 months when another bank has a better rate.

If you are really concerned about getting the most, why not get a part time job on top of your full time job. The hours you spend looking for rates, you can be doing some side jobs for extra $. That would probably amount to more than what the higher rate at XYZ bank will give you. :lol:

The question is how much is "enough"? I will just stick with VG Prime MMF and move on.
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use both

Post by raymjy »

Have money with Vanguard and banks. Get the best of both worlds. I have been moving money recently as bank yields are higher. This has been pretty easy since I have the transfer setup.

Good luck.
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Post by Eagle784 »

jj987 wrote: If you are really concerned about getting the most, why not get a part time job on top of your full time job. The hours you spend looking for rates, you can be doing some side jobs for extra $. That would probably amount to more than what the higher rate at XYZ bank will give you. :lol:
Exactly how much time do you estimate it takes to check bankdeals and open an online account twice a year? I just opened a new savings account, I'd be surprised if it took me an hour including setting up ACH and yodlee.


In any case, these accounts can also be invaluable to those who want to make sure they have access to their HELOC at minimal/no cost, or avoid paying off other low-interest debt.
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Post by smackfu »

Here's a handy rate-chaser calculator:

http://www.mymoneyblog.com/archives/200 ... lator.html

If you move $10k from the Vanguard Prime MM to Dollar Savings, you make an extra $96 after 6 months.

I understand the comments about "wasting time rate chasing", but this is the a board where most people will switch funds because of a 0.5% expense ratio difference. Moving cash for a 2% improvement seems rational compared to that.
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Post by greg24 »

smackfu wrote:I understand the comments about "wasting time rate chasing", but this is the a board where most people will switch funds because of a 0.5% expense ratio difference. Moving cash for a 2% improvement seems rational compared to that.
People are moving funds for 0.5% expense ratio that they expect to pay for decades. Do you plan to chase money market fund rates for decades?

Reasons I stick with PMM:

* I direct deposit to it
* I can easily contribute to my Vanguard Roth
* I have my checkwriting privileges set up
* I don't want to give my SSN/financial information to more businesses
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Post by digit8 »

It's an apples-and-oranges comparison. 2% on $10k that are emergency funds or just parked waiting for a good investment over six months is, if only psychologically, a very different thing from .05% over ones entire lifetime with the vast majority of funds one hopes to live on.
And really, when you're talking about money markets and FDIC accounts, the psychological element should probably carry the most weight. That's the money you need to feel secure about and comfortable with(not only in the sense that it will still be there next week, but that you're not worried it could be doing more, or that it's a hassle to get to, etc), that's priority one.
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question

Post by tibbitts »

The obvious question is, for those of us who have savings at Emigrant, why is this component of Emigrant paying 4%, and the formerly high-yielding component of Emigrant paying 2.5%. And why should we assume that in the two weeks that are necessary to transfer money from Emigrant to Dollar, Dollar won't yield 2.5% (or less), and "son of Dollar" will have risen to pay 4%? There is a cost to creating these entities and handling the transfers of funds from one two the other (through a checking account intermediary, no less), so hopefully someone can explain what the purpose of creating the new entity could be. It really is the same bank (in FDIC terms), and it's not like the bank didn't already have an online, high-interest presence, so I must be missing something.

Paul
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Post by smackfu »

One barrier to that is that creating banks is not that easy. Dollar Savings Direct is not new so much as a "spare" bank that Emigrant had hanging around and renamed. It was called Banco Fortuna and was aimed at a Hispanic market.

The URL is still out there but it redirects to DSD:
https://www.bancofortuna.com/
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true, but

Post by tibbitts »

smackfu wrote:One barrier to that is that creating banks is not that easy. Dollar Savings Direct is not new so much as a "spare" bank that Emigrant had hanging around and renamed. It was called Banco Fortuna and was aimed at a Hispanic market.

The URL is still out there but it redirects to DSD:
https://www.bancofortuna.com/
Yes, I agree - which is why if the objective was to gather more deposits, I don't see why just having dollarsavingsdirect point to emigrantdirect wouldn't have been a better option for the bank. Ultimately, rate chasers will now be transferring funds from emigrant to their own bank, then transferring those funds back again. And in the end there will be two brands instead of the one that supposedly represented high rates previously.

Honestly the difference in interest is enough that I'd transfer the money and set up a new account, if Emigrant splitting the deposits in this way made any sense to me. I can imagine that might be a reason for a bank to do this if there really was a second, separate bank entity involved, but in this case that doesn't seem to apply.

I hope somebody can explain Emigrant's motivation for this so I can start earning 1.5% more on my savings!

Paul
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Post by greg24 »

Emigrant got a bunch of rate chasers to jump into their bank. Now that they are there, they aren't going to pay top rates there. Many people will stick due to inertia, just as many of us stick with PMM due to inertia.

Now Dollar Bank of the Week is created to rope in the new rate chasers. Now they land the rate chasers, but pay their "established" accounts at Emigrant a more reasonable rate.

Another reason to avoid the rate chasing game...

And it truly is a game.
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Post by smackfu »

Yes, one real complaint I've heard about these banks is that it is easy to setup one external account, and hard to setup a second. So a "true" rate-chaser may want to do A -> B -> C but can't. You end up either reversing the money all the way back to the original funding account, or you fund everything out of a common account (like your checking) and reverse back into it when you want to switch. Not the end of the world, but you lose a few more days of interest which reduces the benefit.
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Post by eurowizard »

For some people chasing $100 is worth it. Theres a bunch of people on fatwallet forums who open 20 bank accounts a year for $25 to $150 signup bonus per account. For the most part it might be simplier just to take $100 less and leave your money alone and not have to deal with a new company and new potential problems.
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Post by thekro »

The reason that I use vanguard treasurary only mm and prime are my feeling that it is safe. Although a bank may be fdic insured if the bank fails you may not be able to get your money right away, so with the money I want to keep safe I trust Vanguard. I want return of my money not return on it.

Steve
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Post by Ice-9 »

nisiprius wrote:Oddly enough, I just moved $6000 from my Fidelity money market account (1.67% 7-day yield) in taxable to my ING Direct savings account (2.5%), and have opened a Roth IRA at ING Direct in preparation for doing the same from my Roth.

I don't usually chase rates--you'll notice that I can't be bothered to do better than ING Direct's 2.5%. I'm used to the idea that money market mutual funds do better than bank rates. I've been stalling and stalling, hoping that the difference would resolve it self--sourly, I've assumed it would resolve itself by ING Direct lowering its rate--but it hasn't happened, so I've gotten motivated to do it for The Principle Of The Thing.
Not that it's a huge difference, but ING Direct lowered its rate today to 2.40% APY.
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Post by Kenster1 »

Yeah I think there are number of things that people have to evaluate -- whether they want to go thru jumping from bank to bank or not.

Emigrant was big talk and highly recommended just a few years ago as they started off as having the highest rate in the nation and now at 2.50% they are average for a high-yielding savings account.

Expect the same with their new Dollar Savings Direct account.

The other thing to consider for people is how much savings are we talking about and whether they used a tiered approach. Let's say someone has a total of $20k in an emergency fund. Some people divvy this up into $5k for a savings account and $15k into a ST bond fund or laddered CD's.

In this case -- all $20k isn't going into the savings account, it's just $5k -- and so you have to figure out if it's worthwhile to jump from 2.75% to another bank offering 3.75% for that amount of money.

What I'm saying is that people have different strategies. If you're comparing say $20k with high yield in a savings account versus PMM Fund then you are doing better for now versus PMM but not everybody will have everything in PMM -- they may have a tiered strategy and so over the 3-5 year periods you may not be doing much better after taxes. Again, numerous diehards in several past threads use a tiered emergency/savings strategy.
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Post by Kenster1 »

Ice-9 wrote:
nisiprius wrote:Oddly enough, I just moved $6000 from my Fidelity money market account (1.67% 7-day yield) in taxable to my ING Direct savings account (2.5%), and have opened a Roth IRA at ING Direct in preparation for doing the same from my Roth.

I don't usually chase rates--you'll notice that I can't be bothered to do better than ING Direct's 2.5%. I'm used to the idea that money market mutual funds do better than bank rates. I've been stalling and stalling, hoping that the difference would resolve it self--sourly, I've assumed it would resolve itself by ING Direct lowering its rate--but it hasn't happened, so I've gotten motivated to do it for The Principle Of The Thing.
Not that it's a huge difference, but ING Direct lowered its rate today to 2.40% APY.
GMAC Bank was also at 3.25% APY but recently dropped to 3.00% APY.
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Post by jj987 »

Eagle784 wrote:
jj987 wrote: If you are really concerned about getting the most, why not get a part time job on top of your full time job. The hours you spend looking for rates, you can be doing some side jobs for extra $. That would probably amount to more than what the higher rate at XYZ bank will give you. :lol:
Exactly how much time do you estimate it takes to check bankdeals and open an online account twice a year? I just opened a new savings account, I'd be surprised if it took me an hour including setting up ACH and yodlee.


In any case, these accounts can also be invaluable to those who want to make sure they have access to their HELOC at minimal/no cost, or avoid paying off other low-interest debt.
Do you think those online accounts don't have a cost? Their is always a cost, you just don't see it. Also why couldn't you do the same in VG Prime MM?

It may have only taken you an hour to set up, but how often are you looking for the higher rate? It maybe 10 mins here and there but it all adds up.
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Post by foglifter »

smackfu wrote:Yes, one real complaint I've heard about these banks is that it is easy to setup one external account, and hard to setup a second. So a "true" rate-chaser may want to do A -> B -> C but can't. You end up either reversing the money all the way back to the original funding account, or you fund everything out of a common account (like your checking) and reverse back into it when you want to switch. Not the end of the world, but you lose a few more days of interest which reduces the benefit.
I keep my rainy day money in GMAC Online Savings account yielding currently 3.25%. The rate is lower compared to Emigrant's account discussed here but GMAC's rating is much higher and after a few years of chasing returns I just got tired and decided that GMAC is good enough for me. I linked it to about a dozen of external accounts including Fido brokerage account. The money transfers are very fast - 1 day. I also have a GMAC MMA account which has a check-writing feature. If I need to write a check (which happens very rarely) I just transfer money from my savings to MMA and voilà!

I also don't understand why keep money in MMF where you have to pay expense fees for an already lower earning rate.
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Re: Why Are Bogleheads Using Money Market Funds?

Post by Die Hard »

PaPaw wrote:
BTownInvestor wrote:I'm confused about why so many people here are using money market funds for their emergency fund instead of a high-yielding online savings account.
More return is usually correlated with higher risk. Since the highest priority for my emergency funds is for them to be there when I need them, I have chosen to stay with a company I trust (Vanguard) and in a fund that is as safe as I can find (Treasury Money Market). I take more risk with other parts of my portfolio that I do not plan on drawing from for a while. I guess it is just like when I make a purchase, I do not always buy the lowest price item but the item that gives me the best overall value (combination of selling price, effect in use, quality and service). I'm retired.

... PaPaw
Why would one use VG Treasury Money Market vs VG Prime Money Market?...just for my education. We have money in Prime, honestly never looked at the other, but doesn't mean we shouldn't.
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Post by Eagle784 »

jj987 wrote:
Eagle784 wrote:
jj987 wrote: If you are really concerned about getting the most, why not get a part time job on top of your full time job. The hours you spend looking for rates, you can be doing some side jobs for extra $. That would probably amount to more than what the higher rate at XYZ bank will give you. :lol:
Exactly how much time do you estimate it takes to check bankdeals and open an online account twice a year? I just opened a new savings account, I'd be surprised if it took me an hour including setting up ACH and yodlee.


In any case, these accounts can also be invaluable to those who want to make sure they have access to their HELOC at minimal/no cost, or avoid paying off other low-interest debt.
Do you think those online accounts don't have a cost? Their is always a cost, you just don't see it. Also why couldn't you do the same in VG Prime MM?

It may have only taken you an hour to set up, but how often are you looking for the higher rate? It maybe 10 mins here and there but it all adds up.
Sure they have a cost, the rates change often, as has been discussed at length in this thread. As I alluded to earlier, I check for a new rate every 3-6 months, and open a new account every 6mo-1yr. The extra yield derives from the fact that, as you can see in this thread, people are unwilling to deal with online banks, superstitious about FDIC response time in case of a bank failure, believe their SS# is safer at large institutions etc etc etc.
PaPaw
Posts: 400
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Re: Why Are Bogleheads Using Money Market Funds?

Post by PaPaw »

Die Hard wrote:
PaPaw wrote:
BTownInvestor wrote:I'm confused about why so many people here are using money market funds for their emergency fund instead of a high-yielding online savings account.
More return is usually correlated with higher risk. Since the highest priority for my emergency funds is for them to be there when I need them, I have chosen to stay with a company I trust (Vanguard) and in a fund that is as safe as I can find (Treasury Money Market). I take more risk with other parts of my portfolio that I do not plan on drawing from for a while. I guess it is just like when I make a purchase, I do not always buy the lowest price item but the item that gives me the best overall value (combination of selling price, effect in use, quality and service). I'm retired.

... PaPaw
Why would one use VG Treasury Money Market vs VG Prime Money Market?...just for my education. We have money in Prime, honestly never looked at the other, but doesn't mean we shouldn't.
Die Hard, info from the Vanguard website is shown below. I expect Prime is 99.9% safe and Treasury is 99.99% safe (these are made up safety numbers by me just to illustrate where I'm coming from). As I said in my original post, I'm looking for my MM fund to be as safe as possible and available pretty much on the spot if I need it. Thus, I selected Treasury and am willing to forgo the slight amount of extra income I could get from Prime (which, by the way, I held until earlier this year when I switched to Treasury). I am in no way suggesting that everyone should invest the way I do - that is a decision one has to make for their personal situation and comfort level.

Distribution by issuer (% of fund)
as of 12/31/2008
Admiral Trsy Money Mkt
Bankers Acceptances 0.0%
Certificates of Deposit 0.0%
Commercial Paper 0.0%
Other 0.0%
U.S. Government & Agency 100.0%
Yankee/Foreign 0.0%
Total 100.0%

Characteristics as of 12/31/2008
Fund total net assets $27.0 billion
Average maturity 79.0 days
Average quality* Aaa


Distribution by issuer (% of fund)
as of 12/31/2008
Prime Money Mkt Fund
Bankers Acceptances 0.5%
Certificates of Deposit 37.9%
Commercial Paper 16.4%
Other 0.8%
U.S. Government & Agency 44.4%
Yankee/Foreign 0.0%
Total 100.0%

Characteristics as of 12/31/2008
Fund total net assets $110.6 billion
Average maturity 68.0 days
Average quality** Aa1

Best wishes,

... PaPaw
infosoak
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Post by infosoak »

I hold mine in an FDIC high-yield savings account too -- currently earning 3.00%. Money market funds yield change just as much as savings accounts. The best money market fund percentage I can find currently at Fidelity is FSLXX, which is 1.58%

As long as your money is FDIC insured, I see no risk (unless you consider more government debt when a bank fails risk).
foglifter
Posts: 237
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Location: SF Bay Area

Post by foglifter »

infosoak wrote:I hold mine in an FDIC high-yield savings account too -- currently earning 3.00%. Money market funds yield change just as much as savings accounts. The best money market fund percentage I can find currently at Fidelity is FSLXX, which is 1.58%

As long as your money is FDIC insured, I see no risk (unless you consider more government debt when a bank fails risk).
In my retirement accounts I also use FSLXX for any cash. What is important, besides a decent yield it has the lowest expense ratio (although still higher than Vanguard MMFs :cry:). I wish I could use FSLXX as a core account in my IRA but Fidelity only allows FDRXX for this purpose.

BTW, let's not forget to subtract ER from any nice MMF yield we see, whereas with the bank FDIC-insured online savings account what you see is what you get.
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tfb
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Post by tfb »

foglifter wrote:BTW, let's not forget to subtract ER from any nice MMF yield we see, whereas with the bank FDIC-insured online savings account what you see is what you get.
Let's forget it because it's already been subtracted.
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tibbitts
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Joined: Tue Feb 27, 2007 5:50 pm

my experience

Post by tibbitts »

Eagle784 wrote:
jj987 wrote:
Eagle784 wrote:
jj987 wrote: If you are really concerned about getting the most, why not get a part time job on top of your full time job. The hours you spend looking for rates, you can be doing some side jobs for extra $. That would probably amount to more than what the higher rate at XYZ bank will give you. :lol:
Exactly how much time do you estimate it takes to check bankdeals and open an online account twice a year? I just opened a new savings account, I'd be surprised if it took me an hour including setting up ACH and yodlee.


In any case, these accounts can also be invaluable to those who want to make sure they have access to their HELOC at minimal/no cost, or avoid paying off other low-interest debt.
Do you think those online accounts don't have a cost? Their is always a cost, you just don't see it. Also why couldn't you do the same in VG Prime MM?

It may have only taken you an hour to set up, but how often are you looking for the higher rate? It maybe 10 mins here and there but it all adds up.
Sure they have a cost, the rates change often, as has been discussed at length in this thread. As I alluded to earlier, I check for a new rate every 3-6 months, and open a new account every 6mo-1yr. The extra yield derives from the fact that, as you can see in this thread, people are unwilling to deal with online banks, superstitious about FDIC response time in case of a bank failure, believe their SS# is safer at large institutions etc etc etc.
A lot depends on whether you have the personal experience of waiting long enough to get a sense of a new rate being "real", making the switch, then finding that the next week or month the rate is back to below what you would have had at your old online bank.

Meanwhile, to get money from online savings bank A to B, you have to go through bank C, which puts a week-long hold on your money (at zero interest of course.) Same for the next exchange you make.

I think a good case could be made for the second job being a better use of time, except that today, everybody is lucky if they have just one job, so looking for that second job might be just more time wasted.

Paul
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simplesimon
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Post by simplesimon »

I currently have 3 accounts set up for cash:

WaMu checking account: $0 balance, I only have this in case I need to physically deposit a written check.

ING Orange Savings: direct deposits go here and money from checking account gets transferred here. Currently the bulk of cash savings to be used for car/house/travel/whatever twentysomethings will need.

Fido mySmart Cash account (FSLXX): couple thousand dollars held here to pay bills.
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