Money Market vs. online bank: what am I missing?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Posts: 51
Joined: Sun Dec 16, 2012 7:09 pm

Money Market vs. online bank: what am I missing?

Post by fickle » Fri Dec 28, 2012 11:25 am

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Are the books I am reading just a couple of years out of date, and the MM are no longer the best place to keep your emergency stash?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?

User avatar
Posts: 2260
Joined: Sat Aug 11, 2012 6:35 am

Re: Money Market vs. online bank: what am I missing?

Post by telemark » Fri Dec 28, 2012 11:32 am

You're not missing anything -- online banks are the better choice. You get a better return and FDIC insurance.

MM = return-free risk.

Posts: 5181
Joined: Sun Apr 25, 2010 7:42 pm

Re: Money Market vs. online bank: what am I missing?

Post by Dandy » Fri Dec 28, 2012 11:51 am

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.

User avatar
Advisory Board
Posts: 36014
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Money Market vs. online bank: what am I missing?

Post by nisiprius » Fri Dec 28, 2012 12:09 pm

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.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
Posts: 570
Joined: Sun Nov 25, 2012 11:41 am

Re: Money Market vs. online bank: what am I missing?

Post by bUU » Fri Dec 28, 2012 12:59 pm

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%.

Posts: 76
Joined: Mon Oct 01, 2012 9:26 pm

Re: Money Market vs. online bank: what am I missing?

Post by nwffdiver » Fri Dec 28, 2012 1:05 pm

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 :oops:

Posts: 13
Joined: Wed Dec 05, 2012 5:37 pm

Re: Money Market vs. online bank: what am I missing?

Post by aceofspades » Fri Dec 28, 2012 1:07 pm

Barclays online savings are at 1.00%.

Post Reply