When to use Money Market Accounts?

[erebusxc47]

Hey Bogleheads,
As my family's income has grown over the past few months, I am looking at opportunities to optimize our savings. We have finally reached the point where our per month savings is substantial for us, and given my wife's sustained production and my interviewing for new jobs at a 30-60% increase in salary (should have final decisions next week with hard numbers), we will have more financial flexibility.

We're still in the stage of building an appropriate emergency fund, before pursuing maximizing retirement accounts, etc. Currently, we have 1 months expenses in our checking account, and about 1.5 months expenses in savings. With wife's expanded income potential and my new salary, we will be able to save 1 month of expenses for each month of earnings (50% savings rate, which I think is fantastic). If all goes well, we should reach the 3 months Emergency fund minimum by June (if not earlier), and then will be able to decide whether we should continue to put excess earnings into savings, or move into investment/retirement accounts.

We primarly bank w/ Ally, which currently provides 0.1% interest on Checking, and 3.6% on savings. Ally offers a money market fund at 3.8%.

Given our expenses are very predictable from a timing perspective, I'm wondering if it makes sense to chase the higher interest rate of the money market account. My question is should I put some savings in a money market? And if so, how much in terms of monthly expenses?

EDIT: We are currently saving $5k/month, and have a net spend of around $10k/month. Our increased salaries if all go well should allow us to save an additional $10k/month. So we can cover most minor-to-medium sized emergency expenses w/ our paychecks.

[Activesloth]

Vanguard’s money market funds pay 4.5%. It would take just a few minutes to wire your money if you have a Vanguard account.

[erebusxc47]

I do have a Vanguard retirement account. And if that doesn't work, I can certainly open a seperate account there and move money into it. I guess my main question is, should I move 100% of our savings to that? Or should I keep X months expenses in the HYSA and then move any excess into that a money market account that yields more? Simply put, I don't know how to utilize a money market account given liquidity needs?

[gotoparks]

Personally, I keep 2/3 months worth of spend in my checking account and everything else in money market funds, T-Bills, and a couple of CDs. I also have an HYSA with not much in it right now. Money markets were not paying much recently, and everything was in HYSA but I switched last year to mostly money market. If/when money markets go down and HYSA is doing as well or better like before, I will switch back.

Just to let you know a money market account is what a bank or credit union has. A money market fund is what a brokerage like Vanguard has.

[dbr]

Three months expenses is penny-ante or will be before long. Of course you can place that or some of it in a money market fund. The longer term significance of where you keep that little bit of assets is nil. By the same token not being FDIC insured or some other nuance is also nearly irrelevant.

I am fortunate to be retired with reasonable assets and it doesn't bother me in the slightest to have a couple or three months spending in a checking account that pays nothing. The arrangement is a convenient way to manage in and out flow of cash with minimum bother. An emergency fund might be just as conveniently separated into a savings account or a money market fund whether it pays anything or not. Once you get to 20%-25%-30% of your assets in "cash" which some people might claim they do the return on that asset does matter.

[Doctor Rhythm]

Can you clarify whether you’re talking about MM Accounts or MM Funds? MMA are typically offered by most banks. Most people use them like they would a savings account. There may be some restrictions on withdrawals and minimum balances. They are FDIC insured. Earnings are reported on a 1099-INT.

MMF are funds often bought through a brokerage and pay dividends reported on a1099-DIV. While they can loose money, this is very rare. You could also use them as a place to keep cash, though it can take a few days longer to get money out of them compare to a MMA. They are also used as the sweep account at the brokerage to hold cash.

[UpperNwGuy]

Personally, I keep 2/3 months worth of spend in my checking account and everything else in money market funds, T-Bills, and a couple of CDs. I also have an HYSA with not much in it right now. Money markets were not paying much recently, and everything was in HYSA but I switched last year to mostly money market. If/when money markets go down and HYSA is doing as well or better like before, I will switch back.

This is exactly what I have done.

[nisiprius]

To expand on Dr. Rhythm:

It is TERRIBLE that there are two COMPLETELY DIFFERENT things with similar names. Keep them separate in your own mind.

1) There are "money market mutual funds," usually just called money market funds. They are a special kind of mutual fund. You get them at brokerages, not at banks. They are not FDIC-insured. They were invented in 1971, when inflation was high but banks were not allowed to pay more than 5¾% interest. Money market funds paid more than 10% and understandably became very popular.

2) In order to compete with money market funds, bank regulators allowed banks to offer a new kind of savings account, which was allowed to pay higher interest but had various restrictions on it (e.g. no more than four withdrawals per month).

This kind of account is called a "money market deposit account," or just money market account. It's a bank account. It's not a mutual fund. It is FDIC-insured. It doesn't make investments in the money market. The only reason for the phrase "money market" in its name is to signal that it is supposed to be competitive with money market funds.

When should you use a bank money market deposit account? When you want an FDIC-insured bank account. Simply look at the range of savings accounts they offer, and the details (APY, minimum to open, minimum to earn APY). If the one that is most appropriate, based on its terms and conditions, happens to be called a "money market account," use it.

When should you use a brokerage money market fund? When you don't mind the lack of FDIC insurance, when you want something you can access at your brokerage rather than at a bank, when the current rate of return for money market funds looks favorable compared to the higher-yielding bank savings accounts.

[enad]

I do have a Vanguard retirement account. And if that doesn't work, I can certainly open a separate account there and move money into it. I guess my main question is, should I move 100% of our savings to that? Or should I keep X months expenses in the HYSA and then move any excess into that a money market account that yields more? Simply put, I don't know how to utilize a money market account given liquidity needs?

We keep up to 2-3 months in our local non-Vanguard checking account to pay bills and more funds in non-retirement accounts at Vanguard. We ACH the money in both directions which takes 1-2 days so no need to wire. Once you see how quickly you can move in both directions you can better make use of a larger percentage at Vanguard which will earn more interest. We keep about 2 years in non-Retirement accounts at Vangaurd

[White Coat Investor]

Vanguard’s money market funds pay 4.5%. It would take just a few minutes to wire your money if you have a Vanguard account.

You don't even have to wire. You just buy using funds in the Ally account. Very easy. I've used both over the years. Sometimes Ally pays more. Sometimes Vanguard. Sometimes it makes sense to be in the municipal MMF. Sometimes it doesn't.

[chassis]

My question is should I put some savings in a money market? And if so, how much in terms of monthly expenses?

Yes. 100% of your "cash" position.

Daily operative cash (Starbucks, cell phone bill, gasoline) and so-called "emergency fund" can be held in a single money market fund.

If you are with Fidelity, many of us recommend FZDXX if you can manage a $100k initial purchase. Subsequent purchases can be less than $100k and the balance does not need to be maintained at $100k.

[MathWizard]

I only use money market funds as a holding place in taxable, waiting to go into tax advantaged (I have been maxing tax advantaged for the last 8 years.)

My cash is in a credit union, with excess cash in CDs, all FDIC insured.

Normal.cash flow is from checking, then savings, both earning very little, and CDs currently earning 4.6% all at but at a brick and mortar CU in my town.

The vast majority of resources are in tax advantaged funds,401k, 403b , 457b and IRAs.

[AnnetteLouisan]

I’ve utilized money market deposit accounts when I wanted higher interest on insured funds but didn’t want to commit to a CD. I’ve utilized them a lot since the 1990s and I still have some.

I only use money market mutual funds as a core fund in taxable awaiting investment, which is to say I only started recently since historically I wasn’t willing to accept the risk of a decline below $1 net asset value per share.

[jeremyl]

You don't even have to wire. You just buy using funds in the Ally account. Very easy. I've used both over the years. Sometimes Ally pays more. Sometimes Vanguard. Sometimes it makes sense to be in the municipal MMF. Sometimes it doesn't.

Since I have an Ally savings account, I could open an Ally invest account and move money to the vanguard federal money market fund (vmfxx) easily then correct?

With the vanguard fund yielding 4.54 compared to Ally's 3.6 on the savings account, this would be a good move then at almost a full percentage point on savings?

[drjd]

You don't even have to wire. You just buy using funds in the Ally account. Very easy. I've used both over the years. Sometimes Ally pays more. Sometimes Vanguard. Sometimes it makes sense to be in the municipal MMF. Sometimes it doesn't.

Since I have an Ally savings account, I could open an Ally invest account and move money to the vanguard federal money market fund (vmfxx) easily then correct?

With the vanguard fund yielding 4.54 compared to Ally's 3.6 on the savings account, this would be a good move then at almost a full percentage point on savings?

I think he is talking about how you can buy funds at vanguard directly from a linked bank account through the vanguard website.

[patrick]

UFB pays 5.02% on FDIC insured savings accounts. There is no need to stick with a bank that will only offer 3.8%, and UFB is slightly ahead of the money market funds as well.

[jeremyl]

UFB pays 5.02% on FDIC insured savings accounts. There is no need to stick with a bank that will only offer 3.8%, and UFB is slightly ahead of the money market funds as well.

Thanks for the notice!

[MrBobcat]

My question is should I put some savings in a money market? And if so, how much in terms of monthly expenses?

Yes. 100% of your "cash" position.

Daily operative cash (Starbucks, cell phone bill, gasoline) and so-called "emergency fund" can be held in a single money market fund.

If you are with Fidelity, many of us recommend FZDXX if you can manage a $100k initial purchase. Subsequent purchases can be less than $100k and the balance does not need to be maintained at $100k.

Do you have to do anything special to buy FZDXX or can I just buy it if I have the required funds? I have the money in SPAXX at the moment.

[bhjjk19]

This topic is timely for me as I recently noticed that my emergency fund at Ally Bank held in the OnLine Savings account has a current rate of 3.75% while my Ally Bank Money Market Account has a rate of 4.00%.
This is the first time in years that the money market rate is higher than their online savings account rate. I questioned 2 different reps why the rates flip flopped and neither one could explain why. I told them I was concerned that I would not know if this rate switch would happen again and all they could say was to keep an eye on the rates on a regular basis.
I was not particularly happy with their reply, but I immediately moved 99% of my online savings account funds into the money market account.
Now I'm strongly considering a Vanguard Money Market Fund and would like to ask suggestions following my below Vanguard background:

Both my wife and I have Vanguard IRA's in Tax-Advantage accounts. Hers account is a brokerage account where my account is on the old Mutual Fund platform.
We each gave each other trading authority.
Neither of us have a Taxable Brokerage account at Vanguard or anywhere else for that matter.
We are age 68 & 69 with a 1mm+ portfolio but living at a 12% tax bracket (below our means) because we care for an Alzheimer's parent and watch grandkids and/or dogs in between our cramped life style. No complaints as we know this will eventually change in the not too distant future.
What this does mean is that our future RMD's will be large, most likely more than we can spend.
This tells me that I should strongly consider a Taxable Brokerage account to invest any excess RMD funds.
Now may be the opportunity to do so by opening up a Taxable Brokerage Fund with the first holding to be a Money Market Fund.
Question(s):
Which Money Market Fund?
Should this be a joint brokerage account?

[chassis]

This topic is timely for me as I recently noticed that my emergency fund at Ally Bank held in the OnLine Savings account has a current rate of 3.75% while my Ally Bank Money Market Account has a rate of 4.00%.
This is the first time in years that the money market rate is higher than their online savings account rate. I questioned 2 different reps why the rates flip flopped and neither one could explain why. I told them I was concerned that I would not know if this rate switch would happen again and all they could say was to keep an eye on the rates on a regular basis.
I was not particularly happy with their reply, but I immediately moved 99% of my online savings account funds into the money market account.
Now I'm strongly considering a Vanguard Money Market Fund and would like to ask suggestions following my below Vanguard background:

Both my wife and I have Vanguard IRA's in Tax-Advantage accounts. Hers account is a brokerage account where my account is on the old Mutual Fund platform.
We each gave each other trading authority.
Neither of us have a Taxable Brokerage account at Vanguard or anywhere else for that matter.
We are age 68 & 69 with a 1mm+ portfolio but living at a 12% tax bracket (below our means) because we care for an Alzheimer's parent and watch grandkids and/or dogs in between our cramped life style. No complaints as we know this will eventually change in the not too distant future.
What this does mean is that our future RMD's will be large, most likely more than we can spend.
This tells me that I should strongly consider a Taxable Brokerage account to invest any excess RMD funds.
Now may be the opportunity to do so by opening up a Taxable Brokerage Fund with the first holding to be a Money Market Fund.
Question(s):
Which Money Market Fund?
Should this be a joint brokerage account?

SPRXX and FZDXX are widely used by posters on this site.

A Fidelity cash management account (CMA) will allow you to buy money market funds, stocks, Treasuries and mutual funds. And you can manage your daily living expense payments with this CMA account.

[gotoparks]

This topic is timely for me as I recently noticed that my emergency fund at Ally Bank held in the OnLine Savings account has a current rate of 3.75% while my Ally Bank Money Market Account has a rate of 4.00%.
This is the first time in years that the money market rate is higher than their online savings account rate. I questioned 2 different reps why the rates flip flopped and neither one could explain why. I told them I was concerned that I would not know if this rate switch would happen again and all they could say was to keep an eye on the rates on a regular basis.
I was not particularly happy with their reply, but I immediately moved 99% of my online savings account funds into the money market account.
Now I'm strongly considering a Vanguard Money Market Fund and would like to ask suggestions following my below Vanguard background:

Both my wife and I have Vanguard IRA's in Tax-Advantage accounts. Hers account is a brokerage account where my account is on the old Mutual Fund platform.
We each gave each other trading authority.
Neither of us have a Taxable Brokerage account at Vanguard or anywhere else for that matter.
We are age 68 & 69 with a 1mm+ portfolio but living at a 12% tax bracket (below our means) because we care for an Alzheimer's parent and watch grandkids and/or dogs in between our cramped life style. No complaints as we know this will eventually change in the not too distant future.
What this does mean is that our future RMD's will be large, most likely more than we can spend.
This tells me that I should strongly consider a Taxable Brokerage account to invest any excess RMD funds.
Now may be the opportunity to do so by opening up a Taxable Brokerage Fund with the first holding to be a Money Market Fund.
Question(s):
Which Money Market Fund?
Should this be a joint brokerage account?

Here is a list of money markets through Vanguard. I use VUSXX.


https://investor.vanguard.com/investmen ... ney_market

[gotoparks]

This topic is timely for me as I recently noticed that my emergency fund at Ally Bank held in the OnLine Savings account has a current rate of 3.75% while my Ally Bank Money Market Account has a rate of 4.00%.
This is the first time in years that the money market rate is higher than their online savings account rate. I questioned 2 different reps why the rates flip flopped and neither one could explain why. I told them I was concerned that I would not know if this rate switch would happen again and all they could say was to keep an eye on the rates on a regular basis.
I was not particularly happy with their reply, but I immediately moved 99% of my online savings account funds into the money market account.
Now I'm strongly considering a Vanguard Money Market Fund and would like to ask suggestions following my below Vanguard background:

Both my wife and I have Vanguard IRA's in Tax-Advantage accounts. Hers account is a brokerage account where my account is on the old Mutual Fund platform.
We each gave each other trading authority.
Neither of us have a Taxable Brokerage account at Vanguard or anywhere else for that matter.
We are age 68 & 69 with a 1mm+ portfolio but living at a 12% tax bracket (below our means) because we care for an Alzheimer's parent and watch grandkids and/or dogs in between our cramped life style. No complaints as we know this will eventually change in the not too distant future.
What this does mean is that our future RMD's will be large, most likely more than we can spend.
This tells me that I should strongly consider a Taxable Brokerage account to invest any excess RMD funds.
Now may be the opportunity to do so by opening up a Taxable Brokerage Fund with the first holding to be a Money Market Fund.
Question(s):
Which Money Market Fund?
Should this be a joint brokerage account?

Here is a list of money market funds through Vanguard. I use VUSXX.


https://investor.vanguard.com/investmen ... ney_market

[gotoparks]

This topic is timely for me as I recently noticed that my emergency fund at Ally Bank held in the OnLine Savings account has a current rate of 3.75% while my Ally Bank Money Market Account has a rate of 4.00%.
This is the first time in years that the money market rate is higher than their online savings account rate. I questioned 2 different reps why the rates flip flopped and neither one could explain why. I told them I was concerned that I would not know if this rate switch would happen again and all they could say was to keep an eye on the rates on a regular basis.
I was not particularly happy with their reply, but I immediately moved 99% of my online savings account funds into the money market account.
Now I'm strongly considering a Vanguard Money Market Fund and would like to ask suggestions following my below Vanguard background:

Both my wife and I have Vanguard IRA's in Tax-Advantage accounts. Hers account is a brokerage account where my account is on the old Mutual Fund platform.
We each gave each other trading authority.
Neither of us have a Taxable Brokerage account at Vanguard or anywhere else for that matter.
We are age 68 & 69 with a 1mm+ portfolio but living at a 12% tax bracket (below our means) because we care for an Alzheimer's parent and watch grandkids and/or dogs in between our cramped life style. No complaints as we know this will eventually change in the not too distant future.
What this does mean is that our future RMD's will be large, most likely more than we can spend.
This tells me that I should strongly consider a Taxable Brokerage account to invest any excess RMD funds.
Now may be the opportunity to do so by opening up a Taxable Brokerage Fund with the first holding to be a Money Market Fund.
Question(s):
Which Money Market Fund?
Should this be a joint brokerage account?

Here is a list of money market funds through Vanguard. I use VUSXX.


https://investor.vanguard.com/investmen ... ney_market


Here is a current thread on two of Vanguards money markets:


viewtopic.php?p=7190567#p7190567