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Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 9:20 am
by shak_VF
Am I looking at it right. Currently .66% for Prime and more like 1.50% currently for Marcus and Cap One?

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 9:23 am
by JoMoney
You're not missing anything. There have been multiple threads on this.
I believe there is a strong consensus that in most circumstances a high-yield FDIC insured bank account is preferable to anything being offered by money market funds.

FWIW, I believe bank rates will drift down over time if market rates stay low. Money market funds adjust quickly with the market, so when market rates rise higher the funds will likely be leading the way up.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 9:24 am
by Silk McCue
Shock and awe. Your eyes are working. They are two different types of instruments. Lots of threads on alternatives to current VG MM rates.

Cheers

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 9:27 am
by Kenkat
Prior to the global pandemic, Prime MM was yielding close to 2.5%. Now it’s heading to near zero, just like it did post 2008-09. So online banks are the place to be right now, although that could change again going forward but not likely anytime soon.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 9:55 am
by mervinj7
shak_VF wrote: Wed Apr 29, 2020 9:20 am Am I looking at it right. Currently .66% for Prime and more like 1.50% currently for Marcus and Cap One?
You should also consider the transfer bonuses for each of these. Cap One has $450 bonus offer for some existing customers if they transfer in $50k.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:16 am
by patrick
You can get up to 1.75% on plain savings accounts (see https://www.doctorofcredit.com/high-int ... gs-to-get/ for an extensive list) so the gap is even wider. The best deposit accounts have beaten money markets funds for quite some time.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:27 am
by Mode32
What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:32 am
by anon_investor
Mode32 wrote: Wed Apr 29, 2020 10:27 am What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?
Not at these rate spreads. Even after taxes at the highest tax bracket, you would be making more with the online bank account.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:37 am
by stan1
Yields on these accounts vary over time and different market conditions.

I move between types of cash accounts (including CDs) based on what yield is available.

I have not seen the benefit of muni money market funds for many years now.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:41 am
by Mode32
anon_investor wrote: Wed Apr 29, 2020 10:32 am
Mode32 wrote: Wed Apr 29, 2020 10:27 am What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?
Not at these rate spreads. Even after taxes at the highest tax bracket, you would be making more with the online bank account.
Thanks for the reasoning. No experience looking at this, but isn't it expected that bank rates will eventually come down similar to money markets, so why bother moving it (say from money market to bank)? Also, what is the usual lag time of bank rates coming down to money market levels? I'm tracking money markets respond faster to rate increases compared to banks.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:43 am
by quisp65
If I researched right... the best high yield savings accounts dropped down to 0.80%ish during their lowest points around 2013ish. I wonder if they were about equal then to the best money markets? Maybe past performance won't be what we go through now though.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:50 am
by Kenkat
quisp65 wrote: Wed Apr 29, 2020 10:43 am If I researched right... the best high yield savings accounts dropped down to 0.80%ish during their lowest points around 2013ish. I wonder if they were about equal then to the best money markets? Maybe past performance won't be what we go through now though.
Funds such as Prime MM were at 0.01% in that time frame. I kept a couple thousand bucks in Prime MM then just for flexibility and to keep it open and I’d earn a few cents a month on my balance. The rest went to an online savings account. When rates rose, I moved back to Prime MM for awhile. Now I’m back to my online savings account.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:57 am
by anon_investor
quisp65 wrote: Wed Apr 29, 2020 10:43 am If I researched right... the best high yield savings accounts dropped down to 0.80%ish during their lowest points around 2013ish. I wonder if they were about equal then to the best money markets? Maybe past performance won't be what we go through now though.
Mode32 wrote: Wed Apr 29, 2020 10:41 am
anon_investor wrote: Wed Apr 29, 2020 10:32 am
Mode32 wrote: Wed Apr 29, 2020 10:27 am What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?
Not at these rate spreads. Even after taxes at the highest tax bracket, you would be making more with the online bank account.
Thanks for the reasoning. No experience looking at this, but isn't it expected that bank rates will eventually come down similar to money markets, so why bother moving it (say from money market to bank)? Also, what is the usual lag time of bank rates coming down to money market levels? I'm tracking money markets respond faster to rate increases compared to banks.
If I remember correctly, money market rates were even lower than high yield savings accounts during that time period. I definitely remember not even bothing with Vanguard Money Market Funds for many years after they went basically to 0 in 2009. Back then think I had ING Direct (now Capital One 360), but it might have been called Orange or Electric Orange back then. In any case, it probably makes more sense to move money to a high yield savings account and enjoy the free lunch while it lasts. Maybe put some of the money into no penalty CDs (no interest rate penalty for redeeming early) or regular CDs if you know you do not need the money. As soon as the Fed announced the first 50 basis rate cut, I immediately started shifting cash into no penalty CDs. I am glad I did, locking in 1.85% on a bunch of them. I have other no penalty CDs at even nhigher rates (2.05% to 2.30%) that I locked in pre-COVID19, when the Fed was cutting rates in 2019. I think right now Marcus, Ally Bank, CIT Bank offer no penalty CDs that range from 1.40% to 1.55%. I think regular CDs may be available at slightly better rates, maybe 1.6%.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 4:56 pm
by PatrickA5
I'm in the same boat. Early last year I closed my Ally accounts and moved everything to Fidelity MM just to simplify my finances. Now my Fidelity account is paying .45. So, today I reopened my Ally account and moved my money back out of Fidelity to a savings and CD - both at 1.5%. Fortunately, I didn't have to reapply at Ally. They were able to just activate my old account. Quite the hassle, but I'm looking at a couple grand a year difference in interest.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:00 pm
by 2020 ButClassic
Online banks with high yield savings have had several weeks to adjust and lower rates even further but chose to pause. They may have found a sweet spot to maintain profitability while remaining competitive with each other.

I wouldn't be surprised if the rates stayed and perhaps even climbed. There is more confidence and stability in the financial world than a couple of weeks ago -- at least as measured by the equity markets.

Re: Money market rates... Vanguard Prime vs online banks

Posted: Wed Apr 29, 2020 10:39 pm
by Mercurius
It seems to take days for the funds to be posted to the settlement account. Wouldn't that make it more difficult to buy in if the market starts dropping again?

Re: Money market rates... Vanguard Prime vs online banks

Posted: Thu Apr 30, 2020 8:07 am
by Silk McCue
Mercurius wrote: Wed Apr 29, 2020 10:39 pm It seems to take days for the funds to be posted to the settlement account. Wouldn't that make it more difficult to buy in if the market starts dropping again?
I can place an order today using funds in my previously linked bank accounts and the order will be executed today.

Cheers

Re: Money market rates... Vanguard Prime vs online banks

Posted: Thu Apr 30, 2020 8:40 am
by PatrickA5
Talked to a nice lady at Ally yesterday while re-opening my account there. She said she has had tons of people transferring money from the big brokerages the last couple of weeks.

Also, for the first time since I opened my Fidelity accounts over a year ago, I had someone call wanting me to set up an appointment with my Fidelity advisor to discuss things. Last year at this time, I couldn't even get my Fidelity guy to return my calls or emails. Could be that VG and Fidelity are seeing money flowing out like the Ally lady said.

Times are sad when people are moving money around to get that great 1.5% interest rate :(