Kindergarten-level question about Money Market fund

[USAFperio]

Sorry, but I have a very elementary question about Money Market funds, particularly the Vanguard Prime Money Market Fund. I typically have $8-10K in my bank account but would like to get a larger return than the measly percentage I'm making on the cash in my bank account.

Question: can I easily move money in and out of the Vanguard Prime Money Market Fund, buying and selling with transfers into and out of my bank account as often as needed, and without a "penalty" of some sort? I've read everything about VMMXX on the Vanguard site and I don't see anything in particular about this. Main question: can I use this fund as a "bank savings account" minus (obviously) check-writing privileges?

I'm also wanting to use this fund as a dumping ground for my dividends for purposes of eventual rebalancing.

Thanks for the help, BGs.

Casey

[Therapist Investor]

Yes, you can easily move your money in and out of Vangurd Prime Money Market. The bank transfer takes 2-3 days on either end to show up in your account. There are no penalties. It’s very convenient. I use the fund for a similar reason. This strategy’s one downside is that I’d we have another financial Armageddon the fund may delay or cancel withdrawals until things are sorted out. Others have posted that the risk of this happening is exceedingly low. Let’s just say that is one thing that does not keep me up at night.

I’m not sure why you would use Prime Money Market as a dumping ground for dividends. Why not just have it set to automatically reinvest and then sell the asset to rebalance?

[shess]

Sorry, but I have a very elementary question about Money Market funds, particularly the Vanguard Prime Money Market Fund. I typically have $8-10K in my bank account but would like to get a larger return than the measly percentage I'm making on the cash in my bank account.

Question: can I easily move money in and out of the Vanguard Prime Money Market Fund, buying and selling with transfers into and out of my bank account as often as needed, and without a "penalty" of some sort? I've read everything about VMMXX on the Vanguard site and I don't see anything in particular about this. Main question: can I use this fund as a "bank savings account" minus (obviously) check-writing privileges?

Over decades I have had fine experiences with MMF as cash-management vehicles. Usually you can get them setup with checkwriting, often with a minimum ($250 in this case, and I think it's a draft not a check, though I never had a case where it mattered), and of course you can get ACH setup so that you can do electronic transfers. I seem to remember once having an account which even had a debit card. [If you have high assets, there's also VanguardAdvantage, which appears to have a debit card and no checkwriting minimum.]

THAT SAID, I find that having my main cash account with a bank is more comfortable. Banks are pretty good at bank stuff these days. Someplace like Ally can provide a checking account for checking things, and a savings account for parking money, at much better rates than you local bank likely pays. You can also often find local credit unions which pay much higher rates, too.

I'd go with "What works best without screwing around too much".

[shess]

I’m not sure why you would use Prime Money Market as a dumping ground for dividends. Why not just have it set to automatically reinvest and then sell the asset to rebalance?

Personally, I prefer to set my taxable accounts to not do dividend reinvestment. In theory, they'll track everything to the penny and it's no big deal. But in practice, reinvestment on mutual funds or ETFs results in ~4 new lots per asset class per year, which really adds up over 40 years. Instead I let dividends accumulate and periodically redirect them towards my most underweight asset.

Also, some of those dividends might be needed to pay estimated taxes. I think it's best to try to pay that out of cashflow to add an additional bit of savings pressure, but sometimes one doesn't have that much headroom in the budget.

[Wiggums]

Yes, you can easily move your money in and out of Vanguard Money Market. The bank transfer about 3 days In my experience.
I transfer money in and out all the time. There is no penalty. You can also get check writing privileges too. I still keep my checking account elsewhere but has Just enough money to cover automated bills that gone in. If the account needs more money, I transfer it from Vanguard to my checking.

Good luck to you.

[myartymyk]

Similar "kindergarten" question - Why would I bother with the vanguard money market fund in this scenario (where I am concerned about check writing and access) when my pnc bank savings account will give 1.9% on balances over $50k? Sometimes I think my strategy is super simple and I am missing something, but in this case I can't find a compelling reason to move the money to vanguard?

[RickBoglehead]

Similar "kindergarten" question - Why would I bother with the vanguard money market fund in this scenario (where I am concerned about check writing and access) when my pnc bank savings account will give 1.9% on balances over $50k? Sometimes I think my strategy is super simple and I am missing something, but in this case I can't find a compelling reason to move the money to vanguard?

1.9% vs 2.5%

$50,000 x 0.6% = $305.09 with daily compounding.

[myartymyk]

Similar "kindergarten" question - Why would I bother with the vanguard money market fund in this scenario (where I am concerned about check writing and access) when my pnc bank savings account will give 1.9% on balances over $50k? Sometimes I think my strategy is super simple and I am missing something, but in this case I can't find a compelling reason to move the money to vanguard?

1.9% vs 2.5%

$50,000 x 0.6% = $305.09 with daily compounding.

Maybe that's true today, but not over the past few periods. I guess i need to be a little more active in watching performance and moving the money around.

Federal Money Mkt Fund
US Gov't Money Market Funds Average* (Benchmark)
1-yr 3-yr 5-yr 10-yr Since inception
07/13/1981
1.78% 0.96% 0.59% 0.34% 4.19%
1.23% 0.53% 0.32% 0.17% 3.78%

[RickBoglehead]

Similar "kindergarten" question - Why would I bother with the vanguard money market fund in this scenario (where I am concerned about check writing and access) when my pnc bank savings account will give 1.9% on balances over $50k? Sometimes I think my strategy is super simple and I am missing something, but in this case I can't find a compelling reason to move the money to vanguard?

1.9% vs 2.5%

$50,000 x 0.6% = $305.09 with daily compounding.

Maybe that's true today, but not over the past few periods. I guess i need to be a little more active in watching performance and moving the money around.

Federal Money Mkt Fund
US Gov't Money Market Funds Average* (Benchmark)
1-yr 3-yr 5-yr 10-yr Since inception
07/13/1981
1.78% 0.96% 0.59% 0.34% 4.19%
1.23% 0.53% 0.32% 0.17% 3.78%

Whether banks, treasuries, or mutual fund companies, there is no investment for interest that is always the best. You must watch regularly. I hadn't had a dime in Vanguard Money Markets for many years and just returned in 2016/17.

And sometimes there are amazing opportunities to get significantly higher returns, such as Ally's 1% bonus in late October. That ~2.5 month bonus yielded 6.64% (or 6.46%, I forget which) on up to $100,000 per person in new funds. My money is back at Vanguard, bonus gets paid on Tuesday.

[deskjockey]

Similar "kindergarten" question - Why would I bother with the vanguard money market fund in this scenario (where I am concerned about check writing and access) when my pnc bank savings account will give 1.9% on balances over $50k? Sometimes I think my strategy is super simple and I am missing something, but in this case I can't find a compelling reason to move the money to vanguard?

Your super simple strategy would work better at a bank with higher rates and no minimum deposit. What's the rate if you drop below $50k? Probably less than 1%. Ally pays 2.2% in savings for all deposit levels, so you'd be better off switching to it (or any of another dozen-plus full-service banks or credit unions with better savings rates and terms, some of which may be local to you if you value being able to walk into a branch). You would still be able to follow your simple strategy, but get more money for it while also gaining flexibility.

Personally, I sweep money from my checking and savings accounts into VMMXX now that rates are higher, in part because I'm an optimizer, but also because it's not that hard to do. A few clicks and you make more money--it's not really that complex or hard to do given the payoff.

[JPH]

MM funds are considered very safe by most but lack FDIC insurance. I cancelled my checkwriting on the Vanguard Prime MM fund some time ago, but there used to be a minimum amount for checkwriting. If you write small checks, then it probably would not work as your primary checking account.

[dunkmachine]

I’m not sure why you would use Prime Money Market as a dumping ground for dividends. Why not just have it set to automatically reinvest and then sell the asset to rebalance?

If it's in taxable account:
1. Make TLH easier without worrying about triggering wash sales.
2. Selling assets generate an unnecessary taxable event.
3. Can reinvest at a time that makes sense for you (i.e. trying your hand at market timing).

[fortyofforty]

It's super easy to electronically move money between Vanguard Money Market funds and bank accounts. As was said, the only disadvantage is the time delay, sometimes three days. You might want to use a combination of bank savings, bank checking, and Vanguard Money Market fund to slide money around. The bank transfer between savings and checking is instantaneous, which is an advantage. Vanguard's Money Market funds can be used to invest in other Vanguard funds very easily, as well. In these days of online everything, it's really just your personal choice. If you like to have eggs in different baskets, and like the idea of bank accounts being insured by the FDIC up to a fairly high limit ($100,000, if I recall correctly), then by all means keep some money there. I just wouldn't use Vanguard Money Market funds to pay small, recurring bills.

[dwickenh]

Yes, you can easily move your money in and out of Vangurd Prime Money Market. The bank transfer takes 2-3 days on either end to show up in your account. There are no penalties. It’s very convenient. I use the fund for a similar reason. This strategy’s one downside is that I’d we have another financial Armageddon the fund may delay or cancel withdrawals until things are sorted out. Others have posted that the risk of this happening is exceedingly low. Let’s just say that is one thing that does not keep me up at night.

I’m not sure why you would use Prime Money Market as a dumping ground for dividends. Why not just have it set to automatically reinvest and then sell the asset to rebalance?

Tax Loss Harvesting?

[Geologist]

I agree with fortyofforty. I have a "money market" account at my credit union and a Vanguard Money Market fund. I move money between them depending on which is paying higher interest. The changeover doesn't happen very often. For many years, I would have said the Vanguard Money Market generally paid more, but since 2008 there was a long period when the credit union account paid more.

The credit union account is insured. On the other hand, if you use the Vanguard Federal Money Market Fund (the settlement account anyway), then a fraction of the income is from US government securities. In many states including mine, that fraction is exempt from state income taxes.

There was a time when I commonly wrote larger checks on the Vanguard Money Market fund (with a $250 minimum, you can't write small checks). (I bought at least one car with a Vanguard MM check.) I don't so much anymore, in part because I write fewer checks in general.

[Corgitodd]

Does VG charge to stop payment on
a MMF check?

[lostdog]

Bank transfers seem to be a day quicker if you use the Federal Money Market sweep account. I use this instead of the Prime Money Market.

The Federal Money Market is less risky also.

[USAFperio]

Thank you, everyone--appreciate the replies, and now I am definitely smarter on using the money market fund to stash my cash.

[trytrying]

I keep $2k in my regular savings account anyways (Ally @ 2.2%) for the ease of the money being there immediately if I need it. I can't imagine a scenario where I couldn't just throw whatever on a credit card and pay it off 3 days later when the MM transferred to my bank but I can be pretty risk averse about things that will likely never happen sometimes.

[johnsmithsf]

You may want to look at this thread
viewtopic.php?t=255718
Quoting: Earn 1.5% on your checking account without the usual hoops (at Fidelity)