Park more than $250,000 in cash

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Topic Author
frankmorris
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Park more than $250,000 in cash

Post by frankmorris » Tue Jul 31, 2018 8:39 pm

Hi everyone,

I've searched forums and thought I'd go ahead and create a new thread with the current interest rate environment. I'll be dealing with some cash flows over the coming months and will end up with more than $250,000 in cash, and am wondering current suggestions on safely parking that cash for future investments, house purchase, etc.

Here are my thoughts:

Max out Ally high-yield savings account at $250,000 (FDIC limit) - current yield @ 1.85%
Rest of funds: Vanguard VMMXX money market account - current SEC yield @ 2.06% (with 0.16 expense ratio)

Any other creative ideas? Does anyone see any new risk to VMMXX with rates changing as they are? Sorry, newbie question - I know. My assumption is no.

mpsz
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Re: Park more than $250,000 in cash

Post by mpsz » Tue Jul 31, 2018 8:47 pm

If you want FDIC insurance with simplicity and the most liquidity, look into Fidelity's Cash Management Account (CMA). The CMA uses 5-10 other banks under the hood (you ONLY deal with Fidelity) and pays 0.53% on amounts over $100k. Other brokerages offer similar accounts but Fidelity's is the best I have seen.

If you're okay with slightly less liquidity, and want a better rate, consider T-Bills. You still sell them on the secondary market before maturity.

folkher0
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Re: Park more than $250,000 in cash

Post by folkher0 » Tue Jul 31, 2018 8:50 pm

If you need to carry more than $50,000, vanguard treasury money market is great. Current sec yield 1.87. State and local income tax exempt, which for some will make the taxable equivalent yield higher than prime money market. 100% in t bills so no need for FDIC insurance.

Otherwise you can do a variety of cds or treasuries depending on what your time frame is.

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Tue Jul 31, 2018 9:03 pm

mpsz wrote:
Tue Jul 31, 2018 8:47 pm
If you want FDIC insurance with simplicity and the most liquidity, look into Fidelity's Cash Management Account (CMA). The CMA uses 5-10 other banks under the hood (you ONLY deal with Fidelity) and pays 0.53% on amounts over $100k. Other brokerages offer similar accounts but Fidelity's is the best I have seen.

If you're okay with slightly less liquidity, and want a better rate, consider T-Bills. You still sell them on the secondary market before maturity.
Thanks mpsz - is there an advantage over the Vanguard VMMXX with the much higher yield?

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Tue Jul 31, 2018 9:06 pm

folkher0 wrote:
Tue Jul 31, 2018 8:50 pm
If you need to carry more than $50,000, vanguard treasury money market is great. Current sec yield 1.87. State and local income tax exempt, which for some will make the taxable equivalent yield higher than prime money market. 100% in t bills so no need for FDIC insurance.

Otherwise you can do a variety of cds or treasuries depending on what your time frame is.
Thanks for the reply - So, I may not need to worry too much about the state and local taxes. This seems to be pretty equivalent to the VMMXX vanguard money market account, so probably not worth investing in that specifically because of the higher minimum and lower yield, right?

Thanks again

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Rager1
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Re: Park more than $250,000 in cash

Post by Rager1 » Tue Jul 31, 2018 9:11 pm

frankmorris wrote:
Tue Jul 31, 2018 8:39 pm
Max out Ally high-yield savings account at $250,000 (FDIC limit) - current yield @ 1.85%
I'd come in under the max $250,000 limit to make sure you have enough room for the interest to be applied and still be under the max limit.

Ed

Saving$
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Re: Park more than $250,000 in cash

Post by Saving$ » Tue Jul 31, 2018 9:21 pm

folkher0 wrote:
Tue Jul 31, 2018 8:50 pm
If you need to carry more than $50,000, vanguard treasury money market is great. Current sec yield 1.87. State and local income tax exempt, which for some will make the taxable equivalent yield higher than prime money market. 100% in t bills so no need for FDIC insurance.

Otherwise you can do a variety of cds or treasuries depending on what your time frame is.
Does anyone know if Fidelity has an equivalent to the above?
How often does the yield change?

blackeagle
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Re: Park more than $250,000 in cash

Post by blackeagle » Tue Jul 31, 2018 10:11 pm

Fidelity's equivalent is FDLXX (Fidelity Treasury Only Money Market Fund) and yields 1.49%.

Alternatively, there are the Prime Money Market Funds (not Treasury only) - SPRXX / FZDXX.

HereToLearn
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Re: Park more than $250,000 in cash

Post by HereToLearn » Tue Jul 31, 2018 10:19 pm

My understanding is that having two beneficiaries on your Ally account means that you will be covered for up to $500K.

Editing to add that I think the account has to be set up as POD, and then each unique beneficiary is insured up to $250K.

https://www.fdic.gov/deposit/covered/categories.html
Last edited by HereToLearn on Tue Jul 31, 2018 10:24 pm, edited 1 time in total.

jacoavlu
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Re: Park more than $250,000 in cash

Post by jacoavlu » Tue Jul 31, 2018 10:20 pm

If I didn’t need the funds too soon I would open a new account at E*TRADE for a $600 cash bonus, and then buy the vanguard treasury money market there because it trades free at E*TRADE I’m pretty sure. That’s like an extra 0.3% if we’re looking for max yield with safety.

mpsz
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Re: Park more than $250,000 in cash

Post by mpsz » Tue Jul 31, 2018 10:20 pm

frankmorris wrote:
Tue Jul 31, 2018 9:03 pm
mpsz wrote:
Tue Jul 31, 2018 8:47 pm
If you want FDIC insurance with simplicity and the most liquidity, look into Fidelity's Cash Management Account (CMA). The CMA uses 5-10 other banks under the hood (you ONLY deal with Fidelity) and pays 0.53% on amounts over $100k. Other brokerages offer similar accounts but Fidelity's is the best I have seen.

If you're okay with slightly less liquidity, and want a better rate, consider T-Bills. You still sell them on the secondary market before maturity.
Thanks mpsz - is there an advantage over the Vanguard VMMXX with the much higher yield?
Depends on what your needs are. I focused on principal safety because your post is focused on the $250,000 FDIC limit.

Full FDIC coverage with the Fidelity option, and the T-bills are issued by the Treasury. That means both of these are safer than the Vanguard fund as they are guaranteed, however the Vanguard option is still pretty safe unless there's some kind of crisis. Depending on duration, T-Bills are yielding close to (sometimes more than) VMMXX for now, the important caveat being that these work more like a CD does in terms of rising rates -- you lock in your rate for the term of the T-Bill and don't benefit from the increased rate until you reinvest or buy more.

https://www.treasury.gov/resource-cente ... =billrates

Peppergrass
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Re: Park more than $250,000 in cash

Post by Peppergrass » Tue Jul 31, 2018 10:56 pm

I kinda say depends on time frame, and comfort level..

there is also the stock option of BIL if you want it out in a couple months and don't want to learn to buy treasuries.

you could start doing a ladder of T-bills, buying 1/12th every month if you worry about rising rates. someone else could give you more specifics on that, to lock in more money you could just buy 1/12th then the rest buy into another longer term and sell off say the 6 month or 3 month selling off 1/12th out of it for the next month..

I would think the 1 year bill would be sufficient as it yields more, and it's a year run if you change mind, also sorta protects if rates rise quick this year..

folkher0
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Re: Park more than $250,000 in cash

Post by folkher0 » Wed Aug 01, 2018 11:38 am

frankmorris wrote:
Tue Jul 31, 2018 9:06 pm
folkher0 wrote:
Tue Jul 31, 2018 8:50 pm
If you need to carry more than $50,000, vanguard treasury money market is great. Current sec yield 1.87. State and local income tax exempt, which for some will make the taxable equivalent yield higher than prime money market. 100% in t bills so no need for FDIC insurance.

Otherwise you can do a variety of cds or treasuries depending on what your time frame is.
Thanks for the reply - So, I may not need to worry too much about the state and local taxes. This seems to be pretty equivalent to the VMMXX vanguard money market account, so probably not worth investing in that specifically because of the higher minimum and lower yield, right?

Thanks again
If you don't have any state/local income taxes, than Prime MM yield will be higher. Because the Treasury MM fund is 100% invested in T bills it can be considered a safer investment than Prime MM. I think most people think that Prime MM is just fine, though. Check out these threads for more discussion of Prime MM:

viewtopic.php?t=253109
viewtopic.php?t=244770

SEC yields are updated daily. A key difference between these funds and a savings account is that the yields can change quickly. Whereas banks usually will only update savings account rates a few times a year. This has lead alot of folks to bounce from savings account to savings account in an effort to get the highest rate. You are also limited to $250,000 of FDIC insurance per savings account, whereas you can buy as much of the Treasury MM as you want and still have the assets backed by the full faith and credit of the US government.

Again, for somewhat more work you can buy CDs or treasuries and capture additional yield, but will likely sacrifice at least some liquidity.

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Wed Aug 01, 2018 12:39 pm

jacoavlu wrote:
Tue Jul 31, 2018 10:20 pm
If I didn’t need the funds too soon I would open a new account at E*TRADE for a $600 cash bonus, and then buy the vanguard treasury money market there because it trades free at E*TRADE I’m pretty sure. That’s like an extra 0.3% if we’re looking for max yield with safety.
Thanks for the heads up on this. I'll check this out. With the new Fidelity zero expense ratios, I may need to open an account there too/alternatively - wondering if they have some sort of deal. Will do some research.

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Wed Aug 01, 2018 12:44 pm

Thanks everyone - really great replies, and some great options here. DIY bond laddering may be a bit beyond my ability level, and honestly I'm not entirely sure where I want to direct funds at this point, so I really would like to preserve as much liquidity as possible. I'll be going through each of your suggestions so far and comparing the relative benefits for each.

Again much appreciated!

rgs92
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Re: Park more than $250,000 in cash

Post by rgs92 » Wed Aug 01, 2018 12:46 pm

Fidelity SPRXX is good (it's one of their money market funds with some sort of marketing name). It's totally liquid. 7 day yield 1.84%.
(EZ On, EZ Off for short term needs.)

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Wed Aug 01, 2018 11:54 pm

rgs92 wrote:
Wed Aug 01, 2018 12:46 pm
Fidelity SPRXX is good (it's one of their money market funds with some sort of marketing name). It's totally liquid. 7 day yield 1.84%.
(EZ On, EZ Off for short term needs.)
Thanks - yield looks similar, but the ER seems a bit higher?

jacoavlu
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Re: Park more than $250,000 in cash

Post by jacoavlu » Thu Aug 02, 2018 12:34 am

Pretty sure money market funds have to report yield after accounting for expenses. So the reported yield should be what you get

Flyer24
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Re: Park more than $250,000 in cash

Post by Flyer24 » Thu Aug 02, 2018 12:47 am

Since you already have money with Ally, create a CD portfolio with them. A 12 month is yielding 2.4%. You would get better yield than just the savings account.

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Thu Aug 02, 2018 11:12 am

jacoavlu wrote:
Thu Aug 02, 2018 12:34 am
Pretty sure money market funds have to report yield after accounting for expenses. So the reported yield should be what you get
Ah, this is a good and interesting point. Thanks - will have to research this. Is that just money market accounts, or all SEC yields?

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Thu Aug 02, 2018 11:12 am

Flyer24 wrote:
Thu Aug 02, 2018 12:47 am
Since you already have money with Ally, create a CD portfolio with them. A 12 month is yielding 2.4%. You would get better yield than just the savings account.
The CD unfortunately still counts toward the FDIC limit, and I don't want to lock up money that long, although the early withdrawal penalties aren't that terrible.

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Hyperborea
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Re: Park more than $250,000 in cash

Post by Hyperborea » Thu Aug 02, 2018 11:19 am

frankmorris wrote:
Thu Aug 02, 2018 11:12 am
Flyer24 wrote:
Thu Aug 02, 2018 12:47 am
Since you already have money with Ally, create a CD portfolio with them. A 12 month is yielding 2.4%. You would get better yield than just the savings account.
The CD unfortunately still counts toward the FDIC limit, and I don't want to lock up money that long, although the early withdrawal penalties aren't that terrible.
If you play about with the names on the accounts then you can bump up the amount of money covered by FDIC. So, have your spouse hold half in their name, or add a second account in your name but payable on death to somebody else (your spouse, your parent, your kid, etc).

https://www.fdic.gov/deposit/deposits/b ... glish.html
Last edited by Hyperborea on Thu Aug 02, 2018 11:20 am, edited 1 time in total.
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Flyer24
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Re: Park more than $250,000 in cash

Post by Flyer24 » Thu Aug 02, 2018 11:19 am

I meant CDs instead of the savings account. You get multiple CDs in smaller amounts so you can break one as you need the money.

bikechuck
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Re: Park more than $250,000 in cash

Post by bikechuck » Thu Aug 02, 2018 11:21 am

Don't overlook the beauty of simplicity. Your original plan is a good one, this is a temporary situation and how much time, effort and complexity do you want to go through for what will be at best a marginal improvement over your proposed approach.

I am in a similar situation as I am selling my home of 28 years and purchasing a better home to age in this fall. I have money parked in already existing accounts at ALLY to use this fall when I need them.

Topic Author
frankmorris
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Re: Park more than $250,000 in cash

Post by frankmorris » Thu Aug 02, 2018 6:24 pm

bikechuck wrote:
Thu Aug 02, 2018 11:21 am
Don't overlook the beauty of simplicity. Your original plan is a good one, this is a temporary situation and how much time, effort and complexity do you want to go through for what will be at best a marginal improvement over your proposed approach.

I am in a similar situation as I am selling my home of 28 years and purchasing a better home to age in this fall. I have money parked in already existing accounts at ALLY to use this fall when I need them.
Thanks! Yeah, keeping it simple is good. Just want to make sure it's good & simple!

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