Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

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

Post by welderwannabe » Sun Sep 23, 2018 8:07 pm

smectym wrote:
Sun Sep 23, 2018 12:03 am
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.
Agreed...bills are beating short term CDs right now so I basically stopped buying CDs. However, I prefer buying my bills at Fidelity. TD only has 2 advantages over Fidelity: Ability to buy a bill < $1000 (although not much of an advantage really) and the ability to put in an order for a bill that hasn't had its official announcement date.

Main advantages of Fidelity over TD:

1) Website is better
2) Their 'core account' bears interest unlike the TD's certificate of indebtedness or whatever they call it
3) Ability to sell bills
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 AlphaLess » Sun Sep 23, 2018 8:22 pm

wriley4409 wrote:
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).
Good advice.

I think the best online savings account rates are around 1.9-2.0% currently.
If you are willing to lock up into a 1 year CD, you can get around 2.5-2.6%.
"You can get more with a kind word and a gun than with just a kind word." George Washington

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

Post by smectym » Sun Sep 23, 2018 8:35 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!
Yes, that’s the site. No, I believe purchases of Treasury bills, notes and bonds on Treasury Direct can only be redeemed at maturity. Different rules apply to savings bonds.

Treasury securities purchased through a brokerage can be redeemed (i.e. sold)—but the selling investor is then exposed to market risk. And depending on which brokerage, and the investor’s relationship with that firm, commissions may be charged on both purchase and sale. Treasury Direct is entirely commission- and fee-free.

Smectym

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

Post by smectym » Sun Sep 23, 2018 8:41 pm

smectym wrote:
Sun Sep 23, 2018 8:35 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


^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!
Yes, that’s the site. No, I believe purchases of Treasury bills, notes and bonds on Treasury Direct can only be redeemed at maturity. Different rules apply to savings bonds.

Treasury securities purchased through a brokerage can be redeemed (i.e. sold)—but the selling investor is then exposed to market risk. And depending on which brokerage, and the investor’s relationship with that firm, commissions may be charged on both purchase and sale. Treasury Direct is entirely commission- and fee-free.

Smectym
PS: Treasury Direct does provide a cumbersome method of redeeming the treasury security prior to maturity but it involves transferring the bond to their brokerage first—and looks like a lot of trouble.

https://www.treasurydirect.gov/indiv/re ... e_sell.htm

Smectym

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

Post by fortfun » Sun Sep 23, 2018 9:24 pm

smectym wrote:
Sun Sep 23, 2018 8:41 pm
smectym wrote:
Sun Sep 23, 2018 8:35 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


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!
Yes, that’s the site. No, I believe purchases of Treasury bills, notes and bonds on Treasury Direct can only be redeemed at maturity. Different rules apply to savings bonds.

Treasury securities purchased through a brokerage can be redeemed (i.e. sold)—but the selling investor is then exposed to market risk. And depending on which brokerage, and the investor’s relationship with that firm, commissions may be charged on both purchase and sale. Treasury Direct is entirely commission- and fee-free.

Smectym
PS: Treasury Direct does provide a cumbersome method of redeeming the treasury security prior to maturity but it involves transferring the bond to their brokerage first—and looks like a lot of trouble.

https://www.treasurydirect.gov/indiv/re ... e_sell.htm

Smectym
Thanks Smectym! I'll just keep using the no risk cd for emergency funds.

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

Post by BogleMelon » Sun Sep 23, 2018 9:55 pm

Last year, I had have moved $30K from Ally to VMMXX but then this week I moved them back to Ally after deciding that I would start churning some bank accounts for their bonuses.
So now I move the $30K as follows:
$15K to a Citi bank package account (checking + savings) to get $400 in 60 days
Another $15K in my wife's name to the same bank to get another $400 in the same 60 days.
That is a $800 for parking $30000 in a bank for 2 months. That is equivalent to 17% APY :D

Also, when it comes to Vanguard brokerage joint account, Vanguard place some restrictions on which person among the 2 owners can withdraw the money in the first 2 months after depositing. Example, if I logged in with my name and purchased VMMXX, my wife (the other joint owner) won't be able to get this money back if she logged in with her name (and vise versa). A workaround: She has to call Vanguard.
Also within the same 2 month period, you are not allowed to transfer the money back to another bank, other than the bank the money came from (imagine what if the money came from 2 sources and you wanted to claim it back all?) Another call to Vanguard will be needed. Difference in interest, doesn't worth the hassle IMO.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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

Post by Phineas J. Whoopee » Mon Sep 24, 2018 9:41 am

SeekingAPlan wrote:
Sun Sep 23, 2018 5:38 pm
...
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.
Without stating an opinion about whether Treasury Direct is better for the specified purpose or not, it is possible to arrange T-bill investments such that one matures each week. That still isn't as liquid as Ally's no-penalty CD (although when I redeemed one early they asked me why - I said I needed the cash and told them nothing more - and they tried to talk me out of it. Depending on one's personality and relative ease doing business over the phone I suppose that itself could be a liquidity restriction in certain peoples' cases).

There definitely are individuals who would be daunted, and it isn't any failing on their own part.

Apart from size restrictions (only $100 multiples at TD) I see no advantage in buying bills at TD rather than in one's brokerage account as long as it offers no-commission Treasury trades at primary auction and maturity, including rolling them over if desired.

PJW

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

Post by welderwannabe » Mon Sep 24, 2018 9:42 am

Phineas J. Whoopee wrote:
Mon Sep 24, 2018 9:41 am
Apart from size restrictions (only $100 multiples at TD) I see no advantage in buying bills at TD rather than in one's brokerage account as long as it offers no-commission Treasury trades at primary auction and maturity, including rolling them over if desired.
+1
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 SeekingAPlan » Mon Sep 24, 2018 9:45 am

I have redeemed Ally's no penalty CD before maturity totally online with just a few button clicks. No bank employee required and no questions asked about why I was redeeming early.

In less than 5 minutes the money was available in my checking account. You cannot get much more liquid than that.

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

Post by Phineas J. Whoopee » Mon Sep 24, 2018 9:53 am

SeekingAPlan wrote:
Mon Sep 24, 2018 9:45 am
I have redeemed Ally's no penalty CD before maturity totally online with just a few button clicks. No bank employee required and no questions asked about why I was redeeming early.

In less than 5 minutes the money was available in my checking account. You cannot get much more liquid than that.
I can easily understand why that may be the case. My experience was several years ago and early redemptions were strictly by phone. Your experience probably reflects the present situation.

PJW

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

Post by Ilikesparklers » Mon Sep 24, 2018 3:48 pm

BogleMelon wrote:
Sun Sep 23, 2018 9:55 pm
Last year, I had have moved $30K from Ally to VMMXX but then this week I moved them back to Ally after deciding that I would start churning some bank accounts for their bonuses.
So now I move the $30K as follows:
$15K to a Citi bank package account (checking + savings) to get $400 in 60 days
Another $15K in my wife's name to the same bank to get another $400 in the same 60 days.
That is a $800 for parking $30000 in a bank for 2 months. That is equivalent to 17% APY :D

Also, when it comes to Vanguard brokerage joint account, Vanguard place some restrictions on which person among the 2 owners can withdraw the money in the first 2 months after depositing. Example, if I logged in with my name and purchased VMMXX, my wife (the other joint owner) won't be able to get this money back if she logged in with her name (and vise versa). A workaround: She has to call Vanguard.
Also within the same 2 month period, you are not allowed to transfer the money back to another bank, other than the bank the money came from (imagine what if the money came from 2 sources and you wanted to claim it back all?) Another call to Vanguard will be needed. Difference in interest, doesn't worth the hassle IMO.
I am also doing the $15K Citbank promo for $400. I found out that you won't receive your bonus until ~150 days. The 60 days covers the "required activities" period. Once those are met, they will fund your account after about 90 more days. I asked if there was any way they'd fund it well before the 90 days, and they said no.

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

Post by BogleMelon » Mon Sep 24, 2018 6:03 pm

Ilikesparklers wrote:
Mon Sep 24, 2018 3:48 pm
I asked if there was any way they'd fund it well before the 90 days, and they said no.
Ouch! Next time I would stick to churning CC bonuses. Way easier
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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

Post by chemocean » Mon Sep 24, 2018 8:01 pm

If you are concerned about estate planning, Vanguard does not allow contingent beneficiaries on Joint Accounts. Allay JUST began allowing PODs designated by percent, as compared to the previous limitation of equal shares for each beneficiary.

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

Post by smectym » Tue Sep 25, 2018 12:50 am

Phineas J. Whoopee wrote:
Mon Sep 24, 2018 9:41 am
SeekingAPlan wrote:
Sun Sep 23, 2018 5:38 pm
...
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.
Without stating an opinion about whether Treasury Direct is better for the specified purpose or not, it is possible to arrange T-bill investments such that one matures each week. That still isn't as liquid as Ally's no-penalty CD (although when I redeemed one early they asked me why - I said I needed the cash and told them nothing more - and they tried to talk me out of it. Depending on one's personality and relative ease doing business over the phone I suppose that itself could be a liquidity restriction in certain peoples' cases).

There definitely are individuals who would be daunted, and it isn't any failing on their own part.

Apart from size restrictions (only $100 multiples at TD) I see no advantage in buying bills at TD rather than in one's brokerage account as long as it offers no-commission Treasury trades at primary auction and maturity, including rolling them over if desired.

PJW
Agree with PJW. Additionally, there is a mind-set issue I think many bogleheads might consider when allocating the “safe money” portion of ones portfolio: are we vulnerable, credulous and wide-eyed “savers” who require the government to step in for us and insure our deposits? Um, why not just ignore FDIC and go straight to the source: Treasury bills and notes. Right now, the rates are more than competitive with bank products.

Apparently there is some Ally CD out there that has minimal withdrawal restrictions. That’s great. For those unable to wean themselves from the tit of FDIC, have at it. (“Thanks, Smectym!! But I’ll just stick with my Ally FDIC etc. etc.!!!)...[not sure whether more exclamation points necessarily correlate with better financial judgement; but maybe so!!!!]. But let’s face it, ultra-safe money market funds yield the same or better and even short-term treasury bills yield quite a bit more. Not sure what “emergency fund” can’t be accommodated by a combination of a treasury MMF and short term bill and/or note investments in treasury securities.

I’ve personally fled from “FDIC-insured” brokerage products such as Schwab and Fidelity offer as brokerage transaction accounts. Credit goes to Vanguard for offering Federal as their brokerage settlement account: a fully competitive money market product. Comparing the products, “FDIC Insured” is the poisoned chalice.

Smectym

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

Post by smectym » Tue Sep 25, 2018 1:17 am

welderwannabe wrote:
Sun Sep 23, 2018 8:07 pm
smectym wrote:
Sun Sep 23, 2018 12:03 am
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.
Agreed...bills are beating short term CDs right now so I basically stopped buying CDs. However, I prefer buying my bills at Fidelity. TD only has 2 advantages over Fidelity: Ability to buy a bill < $1000 (although not much of an advantage really) and the ability to put in an order for a bill that hasn't had its official announcement date.

Main advantages of Fidelity over TD:

1) Website is better
2) Their 'core account' bears interest unlike the TD's certificate of indebtedness or whatever they call it
3) Ability to sell bills
Fair enough. Right now brokerages are “meeting or beating” TD on many fronts and that’s all to the good. Still, points go to Treasury Direct for initiating commission-free trading of treasury securities long ago; the brokerages used to charge a steep commission, much higher than for a stock trade. And not often that any enterprise connected with the government gets “first-mover” credit.

Smectym

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

Post by welderwannabe » Tue Sep 25, 2018 8:37 am

smectym wrote:
Tue Sep 25, 2018 1:17 am
Fair enough. Right now brokerages are “meeting or beating” TD on many fronts and that’s all to the good. Still, points go to Treasury Direct for initiating commission-free trading of treasury securities long ago; the brokerages used to charge a steep commission, much higher than for a stock trade. And not often that any enterprise connected with the government gets “first-mover” credit.
Smectym
+1
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 DavidRoseMountain » Tue Sep 25, 2018 10:42 am

MnD wrote:
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.
This seems like the best idea so far
I have an account at Vanguard for mutual funds (taxable account), as well as for my IRAs.
Is it difficult to add a brokerage account to this?

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

Post by MnD » Tue Sep 25, 2018 11:25 am

DavidRoseMountain wrote:
Tue Sep 25, 2018 10:42 am
MnD wrote:
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.
This seems like the best idea so far
I have an account at Vanguard for mutual funds (taxable account), as well as for my IRAs.
Is it difficult to add a brokerage account to this?
I'm not a Vanguard account holder but my understanding is that Vanguard has two flavors of taxable accounts - the old style one that can just hold Vanguard mutual funds and the newer one that can hold virtually anything including funds, ETF's, individual bonds and stocks etc.
I'm sure someone else can tell you how to tell the difference. If you have the older style fund only account you will probably need to upgrade it to the brokerage type account.

p.s. 90-day T-bills are now up to 2.22% this morning. TEY of 2.34% if paying 5% state tax.

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

Post by Loon11 » Wed Oct 03, 2018 8:59 pm

Have both an Ally no penalty and Vanguard prime money market. Just wondering if the "dividends" for the money market are treated differently than interest from the CDs? Are they dividends in the sense that those held longer are taxed lower?

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

Post by Phineas J. Whoopee » Thu Oct 04, 2018 1:19 pm

Loon11 wrote:
Wed Oct 03, 2018 8:59 pm
Have both an Ally no penalty and Vanguard prime money market. Just wondering if the "dividends" for the money market are treated differently than interest from the CDs? Are they dividends in the sense that those held longer are taxed lower?
Dividends from taxable US fixed-income funds are treated the same as interest on bank products. They're only called dividends because in the US mutual funds are legally organized as corporations, and dividends, along with capital gain distributions, are what corporations pay. Congress was very careful to write the law distinguishing fixed-income fund dividends from equity fund ones.

There are nuances my paragraph hasn't captured, but it's a correct general answer to your perfectly reasonable general question.

PJW

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

Post by Loon11 » Thu Oct 04, 2018 8:25 pm

Thank you Phineas. I was about to put money from Ally in there thinking it might be more tax efficient so was waiting for an answer - really appreciate it.

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

Post by blaugranamd » Thu Oct 04, 2018 8:37 pm

I think people tend to overvalue FDIC. It ensures your money if the bank/CU goes under up to a certain amount. Vanguard's federal MM vmfxx is paying over 2% now. For that fund to have a problem it would mean the US government is not paying on its securities, in which case your dollars are going to become worthless extremely fast.
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Phineas J. Whoopee » Fri Oct 05, 2018 9:42 am

blaugranamd wrote:
Thu Oct 04, 2018 8:37 pm
I think people tend to overvalue FDIC. It ensures your money if the bank/CU goes under up to a certain amount. Vanguard's federal MM vmfxx is paying over 2% now. For that fund to have a problem it would mean the US government is not paying on its securities, in which case your dollars are going to become worthless extremely fast.
I can't, and won't, argue with your point about what you think. You know what you think and nobody else does.

I think it is worth pointing out the difference between an FDIC-insured deposit and anything that isn't one. People may use the information as they please.

For the record, I think you make a good point, but a bank deposit (or credit union via NCUA, except not quite all of them) is insured up to at least $250,000 (depending on how it's registered), and I think that's an important fact.

PJW

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

Post by blaugranamd » Sat Oct 06, 2018 11:06 am

Phineas J. Whoopee wrote:
Fri Oct 05, 2018 9:42 am
blaugranamd wrote:
Thu Oct 04, 2018 8:37 pm
I think people tend to overvalue FDIC. It ensures your money if the bank/CU goes under up to a certain amount. Vanguard's federal MM vmfxx is paying over 2% now. For that fund to have a problem it would mean the US government is not paying on its securities, in which case your dollars are going to become worthless extremely fast.
I can't, and won't, argue with your point about what you think. You know what you think and nobody else does.

I think it is worth pointing out the difference between an FDIC-insured deposit and anything that isn't one. People may use the information as they please.

For the record, I think you make a good point, but a bank deposit (or credit union via NCUA, except not quite all of them) is insured up to at least $250,000 (depending on how it's registered), and I think that's an important fact.

PJW
I'm not saying FDIC/NCUA insurance isn't useful/valuable. But just to consider what it's actually insuring you against: your bank failing and your money "disappearing" along with it. Money in a savings account is used by the bank itself as capital to produce interest (for the bank and you) via loans and other financial products. If the bank doesn't manage that well and goes bankrupt, FDIC will cover your deposit up to $250,000. Anything above that can disappear with the bank.


As far as I understand, a Money Market mutual fund is essentially a trust of money that is managed by the firm (such as Vanguard). Even if VG goes under, the fund and it's assets are still owned by the fund shareholders, it's not lost in the way a bank's savings account capital is lost if the bank fails. If that Fund, like VMFXX/VUSXX, is holding mostly/only US Gov't treasuries and securities, the only way lose money is if the US Gov't defaults on it's debts that are held and the value of your securities declines. So while it's not insured explicitly the way FDIC insures a savings account, it's "insured" by the full faith and credit of the United States Gov't/Treasury.

It's up to the individual to decide which scenario they think will more than likely play out. IMO, if we're in a crisis where the US Treasury is defaulting on it's securities, we're probably in a scenario where FDIC will fail to pay out as wll. Also, please correct me if any of the above understandings are wrong.
:sharebeer
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by TallBoy29er » Sat Oct 06, 2018 11:20 am

Ally has a no penalty 11 month CD yielding 2.10% if you put in $25k+. Can cancel at any time if you find something better!

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

Post by ruralavalon » Sat Oct 06, 2018 11:40 am

TallBoy29er wrote:
Sat Oct 06, 2018 11:20 am
Ally has a no penalty 11 month CD yielding 2.10% if you put in $25k+. Can cancel at any time if you find something better!
Vanguard Prime Money Market Fund (VMMXX) has a current SEC Yield = 2.15%.
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Phineas J. Whoopee
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Re: Ally Savings vs Vanguard Prime Money Market Fund - Need Advice

Post by Phineas J. Whoopee » Sat Oct 06, 2018 12:04 pm

blaugranamd wrote:
Sat Oct 06, 2018 11:06 am
...
I'm not saying FDIC/NCUA insurance isn't useful/valuable. But just to consider what it's actually insuring you against: your bank failing and your money "disappearing" along with it. Money in a savings account is used by the bank itself as capital to produce interest (for the bank and you) via loans and other financial products. If the bank doesn't manage that well and goes bankrupt, FDIC will cover your deposit up to $250,000. Anything above that can disappear with the bank.
...
Also, please correct me if any of the above understandings are wrong.
:sharebeer
In return for funds banks acquire assets. Banks have capital requirements, and if they fall short they fail, but that doesn't necessarily mean they've lost all assets. A bank may fail still having enough assets to cover all insured deposits. The FDIC typically doesn't have to replace every last dollar, and often doesn't have to replace any.

PJW

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

Post by blaugranamd » Sat Oct 06, 2018 2:31 pm

Phineas J. Whoopee wrote:
Sat Oct 06, 2018 12:04 pm
blaugranamd wrote:
Sat Oct 06, 2018 11:06 am
...
I'm not saying FDIC/NCUA insurance isn't useful/valuable. But just to consider what it's actually insuring you against: your bank failing and your money "disappearing" along with it. Money in a savings account is used by the bank itself as capital to produce interest (for the bank and you) via loans and other financial products. If the bank doesn't manage that well and goes bankrupt, FDIC will cover your deposit up to $250,000. Anything above that can disappear with the bank.
...
Also, please correct me if any of the above understandings are wrong.
:sharebeer
In return for funds banks acquire assets. Banks have capital requirements, and if they fall short they fail, but that doesn't necessarily mean they've lost all assets. A bank may fail still having enough assets to cover all insured deposits. The FDIC typically doesn't have to replace every last dollar, and often doesn't have to replace any.

PJW
Agreed. My point is not so much against FDIC accounts but that fears of a federal/treasury MM losing your capital are extremely close to zero and for all intents and purposes should be considered just as safe.
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