Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

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Messy_Orchid_51
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Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Messy_Orchid_51 » Wed May 16, 2018 11:34 pm

Hello,

Quick question.. Would you transfer 25k from an Ally No Penalty CD @1.75% to Vanguard Prime Money Market VMMXX @ 1.87%.

Obviously the rate is higher at Vanguard. From what I gather VMMXX is not FDIC insured but it is incredibly difficult to lose the value of each dollar there.

My general rule of thumb is money saved to be spent in the next 5 years should be held in an FDIC insured account. However, this money has no particular purpose I can reliably claim anymore. The original intent was extra savings to step up to the next house but my area has exploded into HCOL and this amount of cash amounts to nothing. I do have a 12 month emergency fund in a 5-year CD ladder averaging >2% so that base is covered. I think eventually I'll end up siphoning off of the transfer to VMMXX into my taxable investments each quarter to rebalance so that's probably the final destination.

Appreciate in advance any thoughts on this.

Thanks!

reallyconfused
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by reallyconfused » Wed May 16, 2018 11:49 pm

Wouldn't your return be less than the Ally 1.75% CD after they deduct the expense ratio?

Messy_Orchid_51
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Messy_Orchid_51 » Wed May 16, 2018 11:56 pm

reallyconfused wrote:
Wed May 16, 2018 11:49 pm
Wouldn't your return be less than the Ally 1.75% CD after they deduct the expense ratio?

From what I gather the 1.87% is after the expense ratio but correct me if I am wrong here?

LFKB
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by LFKB » Thu May 17, 2018 12:23 am

To put this in perspective, the difference of .12% on $25k is $30 per year...and it would be less after the expense ratio

BusterMcTaco
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by BusterMcTaco » Thu May 17, 2018 12:29 am

I'm pretty sure the SEC yield factors in the expense ratio, but yeah, this is a pretty small delta. The real question is whether VMMXX and the no-penalty CD rates will go down or up over time. If you know that for sure, you should quit your day job and start your own fund.

bltn
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by bltn » Thu May 17, 2018 1:07 am

Transfer it. Maybe interest rates will climb.

reallyconfused
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by reallyconfused » Thu May 17, 2018 1:11 am

Messy_Orchid_51 wrote:
Wed May 16, 2018 11:56 pm
reallyconfused wrote:
Wed May 16, 2018 11:49 pm
Wouldn't your return be less than the Ally 1.75% CD after they deduct the expense ratio?

From what I gather the 1.87% is after the expense ratio but correct me if I am wrong here?

I stand corrected. It does appear that the SEC yield is post expenses. I agree and would make the change. Interest rates appear to be increasing.

J295
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by J295 » Thu May 17, 2018 1:53 am

The modest rate difference on this amount would not cause me to take action.

ERISA Stone
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by ERISA Stone » Thu May 17, 2018 8:38 am

LFKB wrote:
Thu May 17, 2018 12:23 am
To put this in perspective, the difference of .12% on $25k is $30 per year...and it would be less after the expense ratio
This is Bogleheads. Based on the comments I read, there are plenty of people who would go through the hassle to switch for $30. :D

dbr
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by dbr » Thu May 17, 2018 8:42 am

If I had 25K being held for no particular purpose at five years and beyond it would be part of my portfolio of stocks and bonds. For bonds I choose intermediate duration bond funds. Messing around with "cash" holdings and 0.13% differences for long term investing doesn't seem helpful.

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Jack FFR1846 » Thu May 17, 2018 8:47 am

Rates are rising everywhere. I have an Ally 11 month no penalty 1.75% CD as well. It's sitting where it is until someone (that I'm with) offers a regular money market type account at a higher rate. Since opening this CD, Redneck upped their Megamoney account to 1.75%, but I'm almost at their $35k max now and ablebanking.com is at 1.70% with no limit. I expect that when my CD ends, I'll easily find 2% somewhere.
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Riley15 » Thu May 17, 2018 8:47 am

Messy_Orchid_51 wrote:
Wed May 16, 2018 11:34 pm
Hello,

Quick question.. Would you transfer 25k from an Ally No Penalty CD @1.75% to Vanguard Prime Money Market VMMXX @ 1.87%.

Obviously the rate is higher at Vanguard. From what I gather VMMXX is not FDIC insured but it is incredibly difficult to lose the value of each dollar there.

My general rule of thumb is money saved to be spent in the next 5 years should be held in an FDIC insured account. However, this money has no particular purpose I can reliably claim anymore. The original intent was extra savings to step up to the next house but my area has exploded into HCOL and this amount of cash amounts to nothing. I do have a 12 month emergency fund in a 5-year CD ladder averaging >2% so that base is covered. I think eventually I'll end up siphoning off of the transfer to VMMXX into my taxable investments each quarter to rebalance so that's probably the final destination.

Appreciate in advance any thoughts on this.

Thanks!
Vanguard states this pretty clearly on their money market fund page:

The fund is only available to retail investors (natural persons). You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

Money Markets fund are really bond funds trying to be bank accounts which they are clearly not without FDIC insurance. Prime MM also holds over 40% foreign bonds, majority of its holdings. There are 2% savings accounts available with full FDIC insurance so why take the extra risk.

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by indexfundfan » Thu May 17, 2018 9:31 am

Jack FFR1846 wrote:
Thu May 17, 2018 8:47 am
Rates are rising everywhere. I have an Ally 11 month no penalty 1.75% CD as well. It's sitting where it is until someone (that I'm with) offers a regular money market type account at a higher rate. Since opening this CD, Redneck upped their Megamoney account to 1.75%, but I'm almost at their $35k max now and ablebanking.com is at 1.70% with no limit. I expect that when my CD ends, I'll easily find 2% somewhere.
Redneck has upped the limit to $50k.
My signature has been deleted.

BogleMelon
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by BogleMelon » Thu May 17, 2018 9:51 am

I already went with VMMXX. The SEC yield as of today is 1.85% not 1.87%.
The compound rate though is 1.87%. Not sure what is the difference! May be someone can explain?
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by KSActuary » Thu May 17, 2018 9:58 am

ERISA Stone wrote:
Thu May 17, 2018 8:38 am
LFKB wrote:
Thu May 17, 2018 12:23 am
To put this in perspective, the difference of .12% on $25k is $30 per year...and it would be less after the expense ratio
This is Bogleheads. Based on the comments I read, there are plenty of people who would go through the hassle to switch for $30. :D
+$30

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by sddiehard » Thu May 17, 2018 2:41 pm

As of right now on the Ally website it looks like the No-Penalty (11 mo.) CD is 1.50%, not 1.75%. Things change. VMMXX is 1.85%.

Just an observation,

Paul

mega317
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by mega317 » Thu May 17, 2018 3:11 pm

If I already had a Vanguard account I would probably do it, but I would spend less time thinking about it than it took you to write your post.

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by ruralavalon » Thu May 17, 2018 5:51 pm

Messy_Orchid_51 wrote:
Wed May 16, 2018 11:34 pm
Hello,

Quick question.. Would you transfer 25k from an Ally No Penalty CD @1.75% to Vanguard Prime Money Market VMMXX @ 1.87%.

Obviously the rate is higher at Vanguard. From what I gather VMMXX is not FDIC insured but it is incredibly difficult to lose the value of each dollar there.

My general rule of thumb is money saved to be spent in the next 5 years should be held in an FDIC insured account. However, this money has no particular purpose I can reliably claim anymore. The original intent was extra savings to step up to the next house but my area has exploded into HCOL and this amount of cash amounts to nothing. I do have a 12 month emergency fund in a 5-year CD ladder averaging >2% so that base is covered. I think eventually I'll end up siphoning off of the transfer to VMMXX into my taxable investments each quarter to rebalance so that's probably the final destination.

Appreciate in advance any thoughts on this.

Thanks!
No I would not switch either way.

The rate difference is small, and there is only a slight difference in security.
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Rainmaker41 » Thu May 17, 2018 7:32 pm

Or you could get 2% from a 6 month Treasury Bill state-tax free.
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by LFKB » Thu May 17, 2018 10:09 pm

ERISA Stone wrote:
Thu May 17, 2018 8:38 am
LFKB wrote:
Thu May 17, 2018 12:23 am
To put this in perspective, the difference of .12% on $25k is $30 per year...and it would be less after the expense ratio
This is Bogleheads. Based on the comments I read, there are plenty of people who would go through the hassle to switch for $30. :D
The expense ratio is .16% so OP will be losing $10 for the hassle of moving it over. Still worth it??

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by mbasherp » Thu May 17, 2018 10:48 pm

LFKB wrote:
Thu May 17, 2018 10:09 pm
The expense ratio is .16% so OP will be losing $10 for the hassle of moving it over. Still worth it??
OP will not lose $10 because the SEC yield includes the expense ratio.

I move easy things for $30 all the time.

LFKB
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by LFKB » Thu May 17, 2018 10:53 pm

mbasherp wrote:
Thu May 17, 2018 10:48 pm
LFKB wrote:
Thu May 17, 2018 10:09 pm
The expense ratio is .16% so OP will be losing $10 for the hassle of moving it over. Still worth it??
OP will not lose $10 because the SEC yield includes the expense ratio.

I move easy things for $30 all the time.
You sure about that? The definition on Vanguard says nothing about the SEC yield including the expense ratio

“A non-money market fund's SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income as a percentage of its assets. A security's income, for the purposes of this calculation, is based on the current market yield to maturity (for bonds) or projected dividend yield (for stocks) of the fund's holdings over a trailing 30-day period. This hypothetical income will differ (at times, significantly) from the fund's actual experience; as a result, income distributions from the fund may be higher or lower than implied by the SEC yield.

The SEC yield for a money market fund is calculated by annualizing its daily income distributions for the previous 7 days.”

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by tibbitts » Thu May 17, 2018 11:03 pm

LFKB wrote:
Thu May 17, 2018 10:53 pm
mbasherp wrote:
Thu May 17, 2018 10:48 pm
LFKB wrote:
Thu May 17, 2018 10:09 pm
The expense ratio is .16% so OP will be losing $10 for the hassle of moving it over. Still worth it??
OP will not lose $10 because the SEC yield includes the expense ratio.

I move easy things for $30 all the time.
You sure about that? The definition on Vanguard says nothing about the SEC yield including the expense ratio

“A non-money market fund's SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income as a percentage of its assets. A security's income, for the purposes of this calculation, is based on the current market yield to maturity (for bonds) or projected dividend yield (for stocks) of the fund's holdings over a trailing 30-day period. This hypothetical income will differ (at times, significantly) from the fund's actual experience; as a result, income distributions from the fund may be higher or lower than implied by the SEC yield.

The SEC yield for a money market fund is calculated by annualizing its daily income distributions for the previous 7 days.”
It would seem that expenses would have to have already been taken out when distributions were determined.

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Messy_Orchid_51 » Sun May 20, 2018 7:10 pm

Thanks for the input everybody.

I decided to go ahead any make the changes to VMMXX.

There was a bit of debate about the ER but it looks like this is taken into account for the SEC yield so worse case I'm ahead about $30 if I do nothing else.

A good thought was to use an FDIC savings account at ~2% but I already have one and it's maxed out.

Someone else mentioned it would be silly to mess around with cash accounts for measly increases and I tend to agree. The original thought when I opened the account was to save for a home in the next <5 years. Unfortunately, housing prices are rising faster than I can save (after funding retirement accounts) so it will necessitate the sale of my current home to move up anyways.

At the end of the day the 25k will actually sit in VMMXX briefly then be re-balanced into my taxable account between Total Intl and Total Stock.

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Kevin M » Sun May 20, 2018 8:08 pm

There should be no debate about the ER--SEC yield is net of ER--period. Anyone who says or thinks otherwise just doesn't understand SEC yield.

You can actually prove that for yourself if you want. I describe money market SEC yield in more detail in this post, and in a subsequent post show you can calculate the yield you're actually earning as of yesterday: viewtopic.php?f=1&t=246263&start=50#p3936815. This could be different than SEC yield, since SEC yield is an annualized average of the income distributions over the previous seven days, but if you go to the trouble to calculate it yourself, you will see that the annualized average of your accrued dividends over the previous seven days equals SEC yield. Your accrued dividends are net of ER--Vanguard isn't going to credit you with money before taking its cut.

Per that post, you might be better off in a muni money market fund at some point, but probably not right now, because the yields are on the downswing in a quarterly cycle (which no one has been able to explain as far as I know). I just exchanged from CA muni MM to Prime MM based on the analysis I showed in that thread.

BTW, I broke my Ally 1.75% no-penalty CD in early April, because I needed some of it to pay my income taxes. The excess went to VG CA muni MM fund, which at the time had a higher taxable equivalent yield for me than Prime MM. That just changed a few days ago.

One caution. You will not be able to withdraw the transferred funds for 7-10 days, so don't transfer anything you might want to withdraw sooner than that. You might be able to get around it by spending some time on the phone with Vanguard (I have done so), but best just to plan for it. You can use the funds to buy other mutual funds right away, but the 7-10 day hold will follow the money to those funds.

Kevin
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Messy_Orchid_51
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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Messy_Orchid_51 » Sun May 20, 2018 11:22 pm

Thanks Kevin!

Appreciate all of your posts.

My tax equivalent yield for Vanguard Municipal Money Market (VMSXX) at an income tax level of 22% in 2018 and living in an income tax free state would be 1.75% so the Prime MM is a better deal at 1.86%, at least for now.

Interesting, I did not know funds transferred into Prime MM are subject to 7-10 day hold even when used to buy other mutual funds..

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Re: Ally No Penalty CD @1.75% vs VMMXX @ 1.87%

Post by Kevin M » Mon May 21, 2018 10:26 am

Messy_Orchid_51 wrote:
Sun May 20, 2018 11:22 pm
Interesting, I did not know funds transferred into Prime MM are subject to 7-10 day hold even when used to buy other mutual funds..
To clarify, you can use cash transferred into a money market fund from an external bank to buy shares of another mutual fund immediately, just as you could have bought the shares of the other mutual fund directly using the externally-linked bank account. It's just that the hold would then apply to the newly-purchased shares of the other fund. In other words, Vanguard is not going to let you get around the hold by buying shares of another fund then selling them and transferring the money out of Vanguard before the hold is lifted.

Kevin
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