Will Vanguard Prime Money Market fund remain competitive with online banks?

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ReadyOrNot
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Will Vanguard Prime Money Market fund remain competitive with online banks?

Post by ReadyOrNot »

I stopped paying attention to the Vanguard Money Market fund when the yield seemed negligible. But they appear to be competitive now (near 1% yield) with the online banks again. Why? Is this likely to continue? I would prefer to simplify and not open a bunch of accounts chasing interest rates, if they will be competitive in the future. And is Fidelity likely to follow and offer competitive money market yield, too?
livesoft
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Re: Will Vanguard Prime Money Market fund remain competitive with online banks?

Post by livesoft »

How can anyone answer that question? Past history shows that the answer at one time was Yes and at another time was No. It is trivial to switch, so if one finds something more convenient or better for them, then they can switch. It is certainly not like buying a car and trying to keep it for 15 years.
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Rob54keep
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Re: Will Vanguard Prime Money Market fund remain competitive with online banks?

Post by Rob54keep »

At what interest rate is Prime MM a priority over FDIC insured online bank?
Dominic
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Re: Will Vanguard Prime Money Market fund remain competitive with online banks?

Post by Dominic »

Rob54keep wrote:At what interest rate is Prime MM a priority over FDIC insured online bank?
It was very rare to see a money market fund break the buck before 2007. There were problems in 2007, of course, but it should be unlikely to happen again after the regulations put into place. Also, Vanguard is fairly cautious, so the Prime MM fund is probably not much riskier than an FDIC insured account.

I'd say 5-10 basis points is roughly the turning point.

However, you should keep enough money in an FDIC insured account to carry you through an emergency of a couple months at least. If a money market panic occurs, then MM funds are allowed to freeze withdrawals so that they don't lose money by flooding the market with their assets.
sport
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Re: Will Vanguard Prime Money Market fund remain competitive with online banks?

Post by sport »

ReadyOrNot wrote:I stopped paying attention to the Vanguard Money Market fund when the yield seemed negligible. But they appear to be competitive now (near 1% yield) with the online banks again. Why? Is this likely to continue? I would prefer to simplify and not open a bunch of accounts chasing interest rates, if they will be competitive in the future. And is Fidelity likely to follow and offer competitive money market yield, too?
Vanguard (and Fidelity) money market funds yield whatever the very short term debt market yields, less expenses. They don't really "offer" anything. Banks pay whatever interest rate they wish to pay. So, for competitive and marketing reasons, banks will often pay more than the "going rate" when rates are low. Conversely, when rates are higher, banks may not feel that they need to pay that much and then will offer less. As an aside, don't confuse money market funds with money market bank accounts which are just another bank product.
lack_ey
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Re: Will Vanguard Prime Money Market fund remain competitive with online banks?

Post by lack_ey »

On the current trajectory, money market funds may yield some 0.5% more or so by around the end of the year (possibly more, could be less). Depends on where short-term interest rates go. Seems like the economy can sustain some more increases, but that could change, or maybe even inflation picks up enough that they go up even further.

The online bank account rates will likely be slow to follow, so if anything Vanguard Prime Money Market will probably be yielding more before too long.

It's hard for Fidelity to offer an equivalent yield because Vanguard has a cost advantage, charging lower expenses. Fidelity Money Market Fund (SPRXX) is at an SEC yield of 0.81% while the $100k minimum share class (FZDXX) is at 0.93% These too could surpass the online bank accounts but they're likely to trail Vanguard Prime MM.
RAchip
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Re: Will Vanguard Prime Money Market fund remain competitive with online banks?

Post by RAchip »

Interest rates are finally rising. I expect the rate paid by the vanguard PMM to continue to rise. But who knows. I keep a lot of cash (enough to buy the admiral shares of the VG PMM) so I feel a lot better keeping it in this fund with $100 billion in it rather than in some bank account.
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