Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

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Investing.Newbie
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Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Investing.Newbie » Fri Sep 21, 2018 11:16 am

Hello All

I'm new to money market accounts and need your advice. I have the following questions.

1. How do I calculate the interest rate for money market account ?
For example Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

2. I have around $40,000 emergency fund in Ally savings (1.85% interest compounded daily).

3. Does it make any sense to move this to Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

Thanks once again for all your help !
Newbie

bikechuck
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by bikechuck » Fri Sep 21, 2018 11:26 am

The Ally savings a/c is FDIC insured. Don't think that is true of the money market fund.

Investing.Newbie
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Investing.Newbie » Fri Sep 21, 2018 11:31 am

bikechuck wrote:
Fri Sep 21, 2018 11:26 am
The Ally savings a/c is FDIC insured. Don't think that is true of the money market fund.
Thanks for the response ... is there any significant difference in the amount of interest generated by these two accounts for a principal of $40,000 ?
Thanks !

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by wriley4409 » Fri Sep 21, 2018 11:55 am

There is a $112 per year difference in earnings between those two accounts for the $40,000 balance. I personally wouldn't put ALL of my cash in an un-insured money market account, however I do split my cash between a local credit union (roughly 1/3), Ally.com online savings (1/3), and VMMXX (1/3).

Investing.Newbie
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Investing.Newbie » Fri Sep 21, 2018 12:04 pm

Good advice wriley ... Thanks !

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peterinjapan
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by peterinjapan » Fri Sep 21, 2018 12:08 pm

Popular Direct has FDIC insured 2.0%, I have my emergency/upcoming tax money there.

https://www.populardirect.com/

UpperNwGuy
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by UpperNwGuy » Fri Sep 21, 2018 12:37 pm

I have all my cash in Vanguard money market funds. None in FDIC or NCUA insured accounts. I consider the additional risk to be so small as to be negligible.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by stan1 » Fri Sep 21, 2018 12:48 pm

Vanguard Treasury Money Market dividends are not taxed by states (but it does have a $50K minimum to open an account). It only invests in US Treasury debt which "should be" as secure as FCIC/NUCA coverage ("full faith and credit of the US Government").

Vanguard Federal Money Market fund is partially taxed by states.

Risk of losing a lot of money in Prime Money Market fund is very, very low especially without reports of economic weaknesses. It was widely known Wall Street was having problems before the Reserve Fund "broke the buck" on September 16, 2008. Bear Stearns failed in March 2008. Yes if I heard a news report of a Wall Street bank close to failing I would move from Prime Money Market fund to FDIC/NCUA insured. It's unlikely a money market fund breaking the buck would be the first public indicator of a major failure in the economy or banking system.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by nwffdiver » Fri Sep 21, 2018 3:04 pm

I keep the majority of my EF in Ally’s online savings account @ 1.85, but also have 1/3 in VG prime MM fund. Both are pretty much safe, and the difference in interest is negligible on $40 k . I just prefer having some cash I can immediately move to equities if needed. I simply refill both as needed.

:sharebeer
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by welderwannabe » Fri Sep 21, 2018 3:36 pm

Most of my MM money is in prime. I do have 30% of my EFund in Federal MM (settlement fund), but that is mainly for easy of buying tbills in my efund when I want to.

Federal does have the added benefit of being free from liquidity gates or haircuts in periods of stress.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Whocares1000 » Fri Sep 21, 2018 3:56 pm

The way I look at it, the odds of a fund breaking the buck are very low. Since the advent of Money Market Funds, only 3 have broken the buck (2 during the financial crisis of 2008). May others could have broken the buck but have been propped up by either their holding companies or eventually by the government during the above crisis. Therefore the odds of a fund breaking the buck is, although not 0, very low.

As another poster said, you will also get warning that the basic banking economy is off the rails long before a fund breaks the buck. By the time the Reserve Fund had broken the buck, Bear Sterns had already gone bankrupt and the news was constantly reporting about the crisis. A fund breaking the buck would be more of a lagging rather than leading indicator of banking issues.

The big thing to look at is the cost of holding the Money Market Fund (even more important than rate of return). Lower costs means that the fund can provide a higher return to the investor without taking on extra risk. In fact, when I looked at The Reserve Fund after it crashed, I noticed that although its rate of return was similar to the Vanguard Prime MMF, it fees were much higher. Therefore, in order to get that higher return, the fund had to take on extra risk and got caught. In fact, I would doubt that the Vanguard Prime MMF would ever break the buck and if it did (and Vanguard did not try to prop it up), we will have bigger issues in the economy.

The final thing is that even of the funds that broke the buck, the investors got most of their money back (between 95% and 99%). The biggest issue was having to wait to get their money.

SeekingAPlan
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by SeekingAPlan » Fri Sep 21, 2018 5:49 pm

Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Artsdoctor » Fri Sep 21, 2018 6:05 pm

welderwannabe wrote:
Fri Sep 21, 2018 3:36 pm
Most of my MM money is in prime. I do have 30% of my EFund in Federal MM (settlement fund), but that is mainly for easy of buying tbills in my efund when I want to.

Federal does have the added benefit of being free from liquidity gates or haircuts in periods of stress.

Perfect synopsis.

It's really, really hard to imagine a Vanguard money market fund breaking the buck. I remember 2008-2009 extremely well and there are so many other things that can go wrong.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Miriam2 » Fri Sep 21, 2018 6:08 pm

I would also be interested in the answer to this question.
Investing.Newbie wrote: I'm new to money market accounts and need your advice. I have the following questions.

1. How do I calculate the interest rate for money market account ?
For example Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

2. I have around $40,000 emergency fund in Ally savings (1.85% interest compounded daily).

3. Does it make any sense to move this to Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

. . . is there any significant difference in the amount of interest generated by these two accounts for a principal of $40,000 ?
This is the Q and I'm also interested in learning the answer.

OP understands that Ally Bank pays him 1.85% on his balance, compounded daily. But the Vg MM Fund appears to calculate the interest differently and it's hard to compare them.

How do we translate the Vg SEC yield and Compound yield into compounded daily interest to compare the two funds apples to apples?

Investing.Newbie
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Investing.Newbie » Fri Sep 21, 2018 6:22 pm

Miriam2 wrote:
Fri Sep 21, 2018 6:08 pm
I would also be interested in the answer to this question.
Investing.Newbie wrote: I'm new to money market accounts and need your advice. I have the following questions.

1. How do I calculate the interest rate for money market account ?
For example Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

2. I have around $40,000 emergency fund in Ally savings (1.85% interest compounded daily).

3. Does it make any sense to move this to Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

. . . is there any significant difference in the amount of interest generated by these two accounts for a principal of $40,000 ?
This is the Q and I'm also interested in learning the answer.

OP understands that Ally Bank pays him 1.85% on his balance, compounded daily. But the Vg MM Fund appears to calculate the interest differently and it's hard to compare them.

How do we translate the Vg SEC yield and Compound yield into compounded daily interest to compare the two funds apples to apples?
+1

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by abuss368 » Fri Sep 21, 2018 6:42 pm

You have to look at it from different angles. The bank savings account is an FDIC insured account. The Vanguard Money market funds are not FDIC and thus are somewhat higher risk and thus yield to compensate for the risk.

Personally we eliminated our low yield savings account at our bank a year ago and just keep the cash in Prime Money Market with Vanguard. We sleep well at night.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Rain
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Rain » Fri Sep 21, 2018 7:45 pm

Investing.Newbie wrote:
Fri Sep 21, 2018 6:22 pm
Miriam2 wrote:
Fri Sep 21, 2018 6:08 pm
I would also be interested in the answer to this question.
Investing.Newbie wrote: I'm new to money market accounts and need your advice. I have the following questions.

1. How do I calculate the interest rate for money market account ?
For example Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

2. I have around $40,000 emergency fund in Ally savings (1.85% interest compounded daily).

3. Does it make any sense to move this to Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

. . . is there any significant difference in the amount of interest generated by these two accounts for a principal of $40,000 ?
This is the Q and I'm also interested in learning the answer.

OP understands that Ally Bank pays him 1.85% on his balance, compounded daily. But the Vg MM Fund appears to calculate the interest differently and it's hard to compare them.

How do we translate the Vg SEC yield and Compound yield into compounded daily interest to compare the two funds apples to apples?
+1
+2

I was also wondering. I found this blog post from MyMoneyBlog http://www.mymoneyblog.com/comparing-in ... ounts.html which explains to compare the 7-day effective compound yield of the money market fund to the savings account APY. OR, if you instead have savings account APR, the 7-day yield (or SEC) of the money market fund to the savings account APR.

So:
  • VMMXX Compound Yield=2.13%
  • Ally Savings APY=1.85%
With these two reported rates, $40K for one year:
  • in VMMXX would earn $40,000 x .0213 = $852
  • in Ally Savings would earn $40,000 x .0185 = $742
for a difference of $112 (in a theoretical world where the rates don't change within the year).

tibbitts
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by tibbitts » Fri Sep 21, 2018 8:00 pm

abuss368 wrote:
Fri Sep 21, 2018 6:42 pm
You have to look at it from different angles. The bank savings account is an FDIC insured account. The Vanguard Money market funds are not FDIC and thus are somewhat higher risk and thus yield to compensate for the risk.

Personally we eliminated our low yield savings account at our bank a year ago and just keep the cash in Prime Money Market with Vanguard. We sleep well at night.
There has never been a consistent relationship such as you're suggesting between security/risk and rates. Over many periods, FDIC accounts have out-yielded, sometimes by a considerable amount, Prime. Of course over some other periods, they haven't. Banks set their account rates to whatever they want, sometime for reasons that are difficult to explain.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by abuss368 » Fri Sep 21, 2018 8:13 pm

tibbitts wrote:
Fri Sep 21, 2018 8:00 pm
abuss368 wrote:
Fri Sep 21, 2018 6:42 pm
You have to look at it from different angles. The bank savings account is an FDIC insured account. The Vanguard Money market funds are not FDIC and thus are somewhat higher risk and thus yield to compensate for the risk.

Personally we eliminated our low yield savings account at our bank a year ago and just keep the cash in Prime Money Market with Vanguard. We sleep well at night.
There has never been a consistent relationship such as you're suggesting between security/risk and rates. Over many periods, FDIC accounts have out-yielded, sometimes by a considerable amount, Prime. Of course over some other periods, they haven't. Banks set their account rates to whatever they want, sometime for reasons that are difficult to explain.
I recall the days of Prime yield 5.00% - 6.50%. Very long ago when money markets were much higher than savings accounts. I think that all changed after 2008!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Miriam2
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Miriam2 » Sat Sep 22, 2018 10:34 am

Rain wrote: I was also wondering. I found this blog post from MyMoneyBlog http://www.mymoneyblog.com/comparing-in ... ounts.html which explains to compare the 7-day effective compound yield of the money market fund to the savings account APY. OR, if you instead have savings account APR, the 7-day yield (or SEC) of the money market fund to the savings account APR.

So:
  • VMMXX Compound Yield=2.13%
  • Ally Savings APY=1.85%
With these two reported rates, $40K for one year:
  • in VMMXX would earn $40,000 x .0213 = $852
  • in Ally Savings would earn $40,000 x .0185 = $742
for a difference of $112 (in a theoretical world where the rates don't change within the year).
Thank you Rain, very helpful :happy

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by jeff1949 » Sat Sep 22, 2018 10:36 am

SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Phineas J. Whoopee » Sat Sep 22, 2018 1:44 pm

Alliteration always amplifies, but the alliterative break the buck isn't the only issue. I agree most prime money market funds, including Vanguard's Prime Money Market Fund, VMMXX, are unlikely to encounter these restrictions, but they're subject to them. That motivated Vanguard to change their brokerage account settlement fund to the Federal Money Market Fund, VMFXX, which is not constrained by the SEC requirements called fees and gates. Alliteration ain't all.

Here's the main, and up to date, SEC webpage on money market funds referencing the new regulations that went into effect not quite two years ago.

PJW

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by SquawkIdent » Sat Sep 22, 2018 3:17 pm

abuss368 wrote:
Fri Sep 21, 2018 6:42 pm
You have to look at it from different angles. The bank savings account is an FDIC insured account. The Vanguard Money market funds are not FDIC and thus are somewhat higher risk and thus yield to compensate for the risk.

Personally we eliminated our low yield savings account at our bank a year ago and just keep the cash in Prime Money Market with Vanguard. We sleep well at night.
+1

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Broken Man 1999 » Sat Sep 22, 2018 3:54 pm

Phineas J. Whoopee wrote:
Sat Sep 22, 2018 1:44 pm
Alliteration always amplifies, but the alliterative break the buck isn't the only issue. I agree most prime money market funds, including Vanguard's Prime Money Market Fund, VMMXX, are unlikely to encounter these restrictions, but they're subject to them. That motivated Vanguard to change their brokerage account settlement fund to the Federal Money Market Fund, VMFXX, which is not constrained by the SEC requirements called fees and gates. Alliteration ain't all.

Here's the main, and up to date, SEC webpage on money market funds referencing the new regulations that went into effect not quite two years ago.

PJW
When the settlement funds were changed to Vanguard's Federal Money Market fund, I just got rid of all our Vanguard Prime Money Market funds. I do give up a bit of return, but because I try to stay fully invested, the real difference is negligible. I much prefer the simplicity of fewer accounts than the extra interest.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Phineas J. Whoopee » Sat Sep 22, 2018 4:55 pm

Broken Man 1999 wrote:
Sat Sep 22, 2018 3:54 pm
...
When the settlement funds were changed to Vanguard's Federal Money Market fund, I just got rid of all our Vanguard Prime Money Market funds. I do give up a bit of return, but because I try to stay fully invested, the real difference is negligible. I much prefer the simplicity of fewer accounts than the extra interest.

Broken Man 1999
When I ended up with a few cents of leftover interest in the settlement fund I placed an order to use all of it to add to my stake in Vanguard's Total Stock Market Index Fund, VTSMX. Nobody complained and it went through. In my Vanguard account I have zero cash and all shares.

PJW

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by welderwannabe » Sat Sep 22, 2018 5:17 pm

Phineas J. Whoopee wrote:
Sat Sep 22, 2018 1:44 pm
Alliteration always amplifies, but the alliterative break the buck isn't the only issue. I agree most prime money market funds, including Vanguard's Prime Money Market Fund, VMMXX, are unlikely to encounter these restrictions, but they're subject to them.
I think it is important to note that all money markets are subject to these restrictions. The government REQUIRES them on fixed NAV non-government funds (aka Retail funds), but also ALLOWS them on any government funds including Federal Money Market. Vanguard has chosen not to implement this time, but they could change that policy.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by radiowave » Sat Sep 22, 2018 6:51 pm

OP, in addition to the no penalty CD at Ally, the 12 mo CD is now 2.50% so if you can tie up your money for a year, you'll get a little better return and insured.
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DDinAZ
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by DDinAZ » Sat Sep 22, 2018 9:03 pm

Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?

smectym
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by smectym » Sat Sep 22, 2018 9:21 pm

welderwannabe wrote:
Sat Sep 22, 2018 5:17 pm
Phineas J. Whoopee wrote:
Sat Sep 22, 2018 1:44 pm
Alliteration always amplifies, but the alliterative break the buck isn't the only issue. I agree most prime money market funds, including Vanguard's Prime Money Market Fund, VMMXX, are unlikely to encounter these restrictions, but they're subject to them.
I think it is important to note that all money markets are subject to these restrictions. The government REQUIRES them on fixed NAV non-government funds (aka Retail funds), but also ALLOWS them on any government funds including Federal Money Market. Vanguard has chosen not to implement this time, but they could change that policy.
True, but the distinction between a Treasury fund and a Prime fund is still significant: Treasury is definitionally safer.

BTW investors can monitor indicators such as money market fund flows and the % of assets a fund holds that mature in 1 or 5 days, that could provide early warning that a fund is coming under stress. Vanguard provides this information on a daily basis: go to the “Portfolio and Management” tab on the fund profile, and scroll down a bit.

https://investor.vanguard.com/mutual-fu ... olio/vmmxx

Smectym

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by mbasherp » Sat Sep 22, 2018 9:38 pm

DDinAZ wrote:
Sat Sep 22, 2018 9:03 pm
Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?
Yes they should. And they already do.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by fortfun » Sat Sep 22, 2018 9:41 pm

jeff1949 wrote:
Sat Sep 22, 2018 10:36 am
SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.
Me too.

smectym
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by smectym » Sun Sep 23, 2018 12:03 am

fortfun wrote:
Sat Sep 22, 2018 9:41 pm
jeff1949 wrote:
Sat Sep 22, 2018 10:36 am
SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.
Me too.
Perhaps an decent CD, but not quite a “no-brainer,” when investors can get near 2% in money market funds with no restrictions, while 1-yr. treasury bill rates hover around 2.5-2.6%.

In fact, I suggest that all investors whose portfolio includes a “safe money” allocation get acquainted with Treasury Direct. The deals at the shorter end of the Treasury yield curve right now are tough to beat. Not many bank CD’s manage it, especially when state taxes are a factor.

If you own a Treasury, (or, for that matter, a pure Treasury Money Market Fund such as VUSXX), FDIC insurance is a laughably redundant and irrelevant curio. Logically, that might seem obvious; but psychologically, it’s not clear that even all boglehead types have absorbed this axiomatic truth.

Smectym

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by NYCwriter » Sun Sep 23, 2018 1:30 am

I use Capital One and a while back realized I was giving up interest with the bank paying 1.5% at the time. I split the difference with Prime MM, and also have a small chunk in floating rate short term treasury fund (TFLO).

I did use CDs for a while to generate more interest and in lieu of adding to bond funds but rolled the remaining one out last year. With bank interest going up and Prime paying around 2% I didn't see much point locking emergency funds in CDs, though higher rates are now making them more attractive for 12+ months. I still have some extra cash that should be in bond funds, so I've been holding my nose and adding a little when yields spike.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by RickBoglehead » Sun Sep 23, 2018 6:58 am

Rain wrote:
Fri Sep 21, 2018 7:45 pm
Investing.Newbie wrote:
Fri Sep 21, 2018 6:22 pm
Miriam2 wrote:
Fri Sep 21, 2018 6:08 pm
I would also be interested in the answer to this question.
Investing.Newbie wrote: I'm new to money market accounts and need your advice. I have the following questions.

1. How do I calculate the interest rate for money market account ?
For example Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

2. I have around $40,000 emergency fund in Ally savings (1.85% interest compounded daily).

3. Does it make any sense to move this to Vanguard prime money market fund (VMMXX) SEC yield 2.11% C Compound yield 2.13% ?

. . . is there any significant difference in the amount of interest generated by these two accounts for a principal of $40,000 ?
This is the Q and I'm also interested in learning the answer.

OP understands that Ally Bank pays him 1.85% on his balance, compounded daily. But the Vg MM Fund appears to calculate the interest differently and it's hard to compare them.

How do we translate the Vg SEC yield and Compound yield into compounded daily interest to compare the two funds apples to apples?
+1
+2

I was also wondering. I found this blog post from MyMoneyBlog http://www.mymoneyblog.com/comparing-in ... ounts.html which explains to compare the 7-day effective compound yield of the money market fund to the savings account APY. OR, if you instead have savings account APR, the 7-day yield (or SEC) of the money market fund to the savings account APR.

So:
  • VMMXX Compound Yield=2.13%
  • Ally Savings APY=1.85%
With these two reported rates, $40K for one year:
  • in VMMXX would earn $40,000 x .0213 = $852
  • in Ally Savings would earn $40,000 x .0185 = $742
for a difference of $112 (in a theoretical world where the rates don't change within the year).
Right.

No reason to be in Ally except for current month's bills.

SeekingAPlan
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by SeekingAPlan » Sun Sep 23, 2018 9:21 am

OP said this is an emergency fund not for current regular expenses.

The Ally No Penalty CD is paying 2.1% with FDIC coverage. The funds are locked up for the first 6 *days*. After that you can withdraw all funds and accrued interest instantly with, as the title implies, no penalty. You can literally get access to the funds in this CD faster than you can get the funds out of your Vanguard MM fund.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by White Coat Investor » Sun Sep 23, 2018 9:23 am

Has anyone answered the question yet about how the two yields are calculated. I always treated them as basically equivalent and leave my money where the higher one is but if I were to find out that one method is 10 basis points lower than the other, that could affect my decision.
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by MnD » Sun Sep 23, 2018 9:31 am

Do you pay state income tax? If your marginal rate is 5% a new 13-week T-bill at 2.18% has a taxable equivalent yield of 2.30%.
By end of next week probably more like 2.25% and 2.37% TEY (assuming 5% state tax rate).
If you have a regular non-retirement brokerage account at Schwab, Fidelity, Vanguard or some others you can but T-bills at auction for no fees or commissions. No need for a seperate Treasury Direct account and gets rid of the need for an on-line bank account if you have one just for better yields on cash.

I buy 13-week t-bills at 4-5 week intervals so my cash is:
25% Prime Money Market
75% in 13-week t-bills with 25% maturing in 4 weeks, 25% in 8 weeks and 25% in 13 weeks.
I'm keeping things short on account of 3 big-ticket item purchases later this fall and winter and the two additional rate hikes expected still this year.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by jeff1949 » Sun Sep 23, 2018 9:37 am

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Last edited by jeff1949 on Sun Sep 23, 2018 10:00 am, edited 1 time in total.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by ruralavalon » Sun Sep 23, 2018 9:40 am

DDinAZ wrote:
Sat Sep 22, 2018 9:03 pm
Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?
No. The yield on a money market fund is after deducting the expenses, it is the net rate.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by mpnret » Sun Sep 23, 2018 9:46 am

fortfun wrote:
Sat Sep 22, 2018 9:41 pm
jeff1949 wrote:
Sat Sep 22, 2018 10:36 am
SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.
Me too.
Synchrony Bank has a 13 month CD at 2.65% APY.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by SeekingAPlan » Sun Sep 23, 2018 9:52 am

mpnret wrote:
Sun Sep 23, 2018 9:46 am
fortfun wrote:
Sat Sep 22, 2018 9:41 pm
jeff1949 wrote:
Sat Sep 22, 2018 10:36 am
SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.
Me too.
Synchrony Bank has a 13 month CD at 2.65% APY.
The Synchrony 13 month CD has an early withdrawal penalty of 6 months of interest. I believe the OP was comparing a MM and online savings because they wanted easy access with no loss of $'s.

My post from Friday afternoon included the Ally rate as 2.1% because it was raised on Friday morning. The emails usually go out a day or two after the rates go up.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by pokebowl » Sun Sep 23, 2018 11:29 am

White Coat Investor wrote:
Sun Sep 23, 2018 9:23 am
Has anyone answered the question yet about how the two yields are calculated. I always treated them as basically equivalent and leave my money where the higher one is but if I were to find out that one method is 10 basis points lower than the other, that could affect my decision.
Everyone is talking over each other in this thread, I believe the SEC yield is similar to APR or "Annual Percentage Rate" that you would see via banking. Thus that is based on the average of the previous 7 days, if you withdrew/liquidated the dividends, you would receive 2.11% over the course of one year.

The "compound yield" of 2.13% is similar to APY or "Annual Percentage Yield". It is the growth you would expect to have after one year with dividends reinvested. (Based on the last 7 days). Its a little confusingly worded granted.
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by am » Sun Sep 23, 2018 11:39 am

abuss368 wrote:
Fri Sep 21, 2018 8:13 pm
tibbitts wrote:
Fri Sep 21, 2018 8:00 pm
abuss368 wrote:
Fri Sep 21, 2018 6:42 pm
You have to look at it from different angles. The bank savings account is an FDIC insured account. The Vanguard Money market funds are not FDIC and thus are somewhat higher risk and thus yield to compensate for the risk.

Personally we eliminated our low yield savings account at our bank a year ago and just keep the cash in Prime Money Market with Vanguard. We sleep well at night.
There has never been a consistent relationship such as you're suggesting between security/risk and rates. Over many periods, FDIC accounts have out-yielded, sometimes by a considerable amount, Prime. Of course over some other periods, they haven't. Banks set their account rates to whatever they want, sometime for reasons that are difficult to explain.
I recall the days of Prime yield 5.00% - 6.50%. Very long ago when money markets were much higher than savings accounts. I think that all changed after 2008!
Don’t know inflation at that time, but could get an easy 50-65k off a million. How sweet.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by DDinAZ » Sun Sep 23, 2018 2:11 pm

mbasherp wrote:
Sat Sep 22, 2018 9:38 pm
DDinAZ wrote:
Sat Sep 22, 2018 9:03 pm
Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?
Yes they should. And they already do.
Where? The summary page for VMMXX shows an SEC yield of 2.11% and an ER of 0.16%. The explanation box for the SEC yield makes no mention of it being a post-ER adjustment. That leads me to believe that it would be correct to use a net yield of (2.11% - 0.16% = 1.95%) in the calculations above. Maybe I'm missing something and have the wrong idea of how Vanguard determines their percentages on the summary page. If so, please fill me in as I'd like to use the correct calculations in my own computations. Thank you.

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by ruralavalon » Sun Sep 23, 2018 2:19 pm

DDinAZ wrote:
Sun Sep 23, 2018 2:11 pm
mbasherp wrote:
Sat Sep 22, 2018 9:38 pm
DDinAZ wrote:
Sat Sep 22, 2018 9:03 pm
Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?
Yes they should. And they already do.
Where? The summary page for VMMXX shows an SEC yield of 2.11% and an ER of 0.16%. The explanation box for the SEC yield makes no mention of it being a post-ER adjustment. That leads me to believe that it would be correct to use a net yield of (2.11% - 0.16% = 1.95%) in the calculations above. Maybe I'm missing something and have the wrong idea of how Vanguard determines their percentages on the summary page. If so, please fill me in as I'd like to use the correct calculations in my own computations. Thank you.
"This yield includes distributions paid by the fund plus any appreciation over a seven-day period, minus average fees incurred during seven days." The formula for determining SEC Yield is explained in detail at Investopedia, "Seven Day Yield".

See also Wikipedia, "7 day SEC yield",
"Take the net interest income earned by the fund over the last 7 days and subtract 7 days of management fees.
Divide that dollar amount by the average size of the fund's investments over the same 7 days.
Multiply by 365/7 to give the 7-day SEC yield.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by fortfun » Sun Sep 23, 2018 2:47 pm

mpnret wrote:
Sun Sep 23, 2018 9:46 am
fortfun wrote:
Sat Sep 22, 2018 9:41 pm
jeff1949 wrote:
Sat Sep 22, 2018 10:36 am
SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.
Me too.
Synchrony Bank has a 13 month CD at 2.65% APY.
A good rate but will not work for a true emergency fund.

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fortfun
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by fortfun » Sun Sep 23, 2018 2:50 pm

smectym wrote:
Sun Sep 23, 2018 12:03 am
fortfun wrote:
Sat Sep 22, 2018 9:41 pm
jeff1949 wrote:
Sat Sep 22, 2018 10:36 am
SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.
Me too.
Perhaps an decent CD, but not quite a “no-brainer,” when investors can get near 2% in money market funds with no restrictions, while 1-yr. treasury bill rates hover around 2.5-2.6%.

In fact, I suggest that all investors whose portfolio includes a “safe money” allocation get acquainted with Treasury Direct. The deals at the shorter end of the Treasury yield curve right now are tough to beat. Not many bank CD’s manage it, especially when state taxes are a factor.

If you own a Treasury, (or, for that matter, a pure Treasury Money Market Fund such as VUSXX), FDIC insurance is a laughably redundant and irrelevant curio. Logically, that might seem obvious; but psychologically, it’s not clear that even all boglehead types have absorbed this axiomatic truth.

Smectym
Are you talking about this site: https://www.treasurydirect.gov/ ?
Are they as liquid as a no penalty CD?

Thanks!

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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Miriam2 » Sun Sep 23, 2018 3:37 pm

White Coat Investor wrote: Has anyone answered the question yet about how the two yields are calculated. I always treated them as basically equivalent and leave my money where the higher one is but if I were to find out that one method is 10 basis points lower than the other, that could affect my decision.
Yes it was answered - but buried in the other discussion about which is better. I suspect the title of the thread, which does not ask "How to calculate," is throwing everyone off.

Here are the answers how to calculate the difference between yields of money market funds and FDIC savings accounts :happy
Rain wrote:
Fri Sep 21, 2018 7:45 pm
I found this blog post from MyMoneyBlog http://www.mymoneyblog.com/comparing-in ... ounts.html which explains to compare the 7-day effective compound yield of the money market fund to the savings account APY. OR, if you instead have savings account APR, the 7-day yield (or SEC) of the money market fund to the savings account APR.

So:
  • VMMXX Compound Yield=2.13%
  • Ally Savings APY=1.85%
With these two reported rates, $40K for one year:
  • in VMMXX would earn $40,000 x .0213 = $852
  • in Ally Savings would earn $40,000 x .0185 = $742
for a difference of $112 (in a theoretical world where the rates don't change within the year).
pokebowl wrote:
Sun Sep 23, 2018 11:29 am
. . . I believe the SEC yield is similar to APR or "Annual Percentage Rate" that you would see via banking. Thus that is based on the average of the previous 7 days, if you withdrew/liquidated the dividends, you would receive 2.11% over the course of one year.

The "compound yield" of 2.13% is similar to APY or "Annual Percentage Yield". It is the growth you would expect to have after one year with dividends reinvested. (Based on the last 7 days). Its a little confusingly worded granted.
ruralavalon wrote:
Sun Sep 23, 2018 9:40 am
DDinAZ wrote:
Sat Sep 22, 2018 9:03 pm
Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?
No. The yield on a money market fund is after deducting the expenses, it is the net rate.
ruralavalon wrote:
Sun Sep 23, 2018 2:19 pm
DDinAZ wrote:
Sun Sep 23, 2018 2:11 pm
mbasherp wrote:
Sat Sep 22, 2018 9:38 pm
DDinAZ wrote:
Sat Sep 22, 2018 9:03 pm
Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?
Yes they should. And they already do.
Where? The summary page for VMMXX shows an SEC yield of 2.11% and an ER of 0.16%. The explanation box for the SEC yield makes no mention of it being a post-ER adjustment. That leads me to believe that it would be correct to use a net yield of (2.11% - 0.16% = 1.95%) in the calculations above. Maybe I'm missing something and have the wrong idea of how Vanguard determines their percentages on the summary page. If so, please fill me in as I'd like to use the correct calculations in my own computations. Thank you.
"This yield includes distributions paid by the fund plus any appreciation over a seven-day period, minus average fees incurred during seven days." The formula for determining SEC Yield is explained in detail at Investopedia, "Seven Day Yield".

See also Wikipedia, "7 day SEC yield",
"Take the net interest income earned by the fund over the last 7 days and subtract 7 days of management fees.
Divide that dollar amount by the average size of the fund's investments over the same 7 days.
Multiply by 365/7 to give the 7-day SEC yield.

SeekingAPlan
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by SeekingAPlan » Sun Sep 23, 2018 5:38 pm

fortfun wrote:
Sun Sep 23, 2018 2:50 pm
smectym wrote:
Sun Sep 23, 2018 12:03 am
fortfun wrote:
Sat Sep 22, 2018 9:41 pm
jeff1949 wrote:
Sat Sep 22, 2018 10:36 am
SeekingAPlan wrote:
Fri Sep 21, 2018 5:49 pm
Have you considered the Ally No Penalty 11 Month CD? It is currently paying 2.1%.
^THIS^ is what I do. Seems a no-brainer to me.
Me too.
Perhaps an decent CD, but not quite a “no-brainer,” when investors can get near 2% in money market funds with no restrictions, while 1-yr. treasury bill rates hover around 2.5-2.6%.

In fact, I suggest that all investors whose portfolio includes a “safe money” allocation get acquainted with Treasury Direct. The deals at the shorter end of the Treasury yield curve right now are tough to beat. Not many bank CD’s manage it, especially when state taxes are a factor.

If you own a Treasury, (or, for that matter, a pure Treasury Money Market Fund such as VUSXX), FDIC insurance is a laughably redundant and irrelevant curio. Logically, that might seem obvious; but psychologically, it’s not clear that even all boglehead types have absorbed this axiomatic truth.

Smectym
Are you talking about this site: https://www.treasurydirect.gov/ ?
Are they as liquid as a no penalty CD?

Thanks!
No, they are not as liquid. For the CD you simply redeem for your original investment plus all accrued interest. With Treasury Direct you would have to transfer your T-bill to a brokerage and then have them sell it on the secondary market. Treasury Direct does not allow you to sell T-bills that they are holding.

DDinAZ
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by DDinAZ » Sun Sep 23, 2018 7:48 pm

ruralavalon wrote:
Sun Sep 23, 2018 2:19 pm
DDinAZ wrote:
Sun Sep 23, 2018 2:11 pm
mbasherp wrote:
Sat Sep 22, 2018 9:38 pm
DDinAZ wrote:
Sat Sep 22, 2018 9:03 pm
Shouldn't interest rate calculations for a Vanguard money market fund use the net rate after adjusting for the fund's expense ratio?
Yes they should. And they already do.
Where? The summary page for VMMXX shows an SEC yield of 2.11% and an ER of 0.16%. The explanation box for the SEC yield makes no mention of it being a post-ER adjustment. That leads me to believe that it would be correct to use a net yield of (2.11% - 0.16% = 1.95%) in the calculations above. Maybe I'm missing something and have the wrong idea of how Vanguard determines their percentages on the summary page. If so, please fill me in as I'd like to use the correct calculations in my own computations. Thank you.
"This yield includes distributions paid by the fund plus any appreciation over a seven-day period, minus average fees incurred during seven days." The formula for determining SEC Yield is explained in detail at Investopedia, "Seven Day Yield".

See also Wikipedia, "7 day SEC yield",
"Take the net interest income earned by the fund over the last 7 days and subtract 7 days of management fees.
Divide that dollar amount by the average size of the fund's investments over the same 7 days.
Multiply by 365/7 to give the 7-day SEC yield.
How intuitive! Thank you for educating me on this matter, I appreciate it. But it does seem to add a bit of fuzziness to the results when comparing rates that are not based on the SEC 7-day yield. So be it.

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