Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

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Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby *3!4!/5! » Thu Jun 15, 2017 6:52 pm

(No, it didn't break the buck.) After almost a lost decade for Money Market Funds, we are finally up to "triple digit" yields (100 basis points).

In 2 years VMMXX yield has increased from 0.01% to 1.00%, while Ally online savings account has increased from 1.00% to 1.05%.

So the question is, will Money Market Funds again become a non-ridiculous place to place some cash. The yields still lag online savings accounts a little (some online savings are a bit higher than Ally), but perhaps Money Market yields may soon exceed online savings accounts. They are subject to different influences.

Any ideas where this is headed, and are people responding to these changes, and shifting where they park cash? Obviously there are better returns for more risk or less liquidity, but you need a little ready cash parked somewhere.

Thoughts? Can anyone explain what exactly pushes Money Market yields versus what pushes online savings yields?

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby White Coat Investor » Thu Jun 15, 2017 7:02 pm

I've spent a lot of time thinking about this and was way too slow to move to savings accounts 8 years ago so I was Johnny on the spot moving back this Spring. The bank can pay you whatever it wants. As long as it can loan money for more than it is paying its depositors, it could work out well for the bank. So it is only vaguely related to market rates.

MMFs are basically the market. So you get the market rate. For a short term security like those in a MMF, those rates are highly correlated to the rates the Fed sets to try to regulate the economy (unemployment rate and inflation rate primarily). So when the Fed raises rates as they have lately, a MMF is very responsive to those. But the same thing happens when the Fed lowers rates. The Fed only indirectly gets to set medium and long term rates, but they have exquisite control over short term rates.
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby aj76er » Thu Jun 15, 2017 8:36 pm

White Coat Investor wrote:I've spent a lot of time thinking about this and was way too slow to move to savings accounts 8 years ago so I was Johnny on the spot moving back this Spring.


Are you saying that you have already moved from Savings Account (e.g. Ally) to VMMXX for cash?
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kenkat » Thu Jun 15, 2017 8:56 pm

I moved all my reserve cash from CapitalOne 360 Savings to Prime MM a couple of weeks ago.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby *3!4!/5! » Thu Jun 15, 2017 9:18 pm

Kenkat wrote:I moved all my reserve cash from CapitalOne 360 Savings to Prime MM a couple of weeks ago.


CapitalOne 360 Savings has been stuck at 0.75% for a while, while other online savings are 1%+ and edging up slightly. But the online savings yields haven't budged much, so I wonder what the dynamics are. The online banks might want to enjoy a wider spread, without passing on the interest increases (unless competition makes them increase). I'm totally guessing, so I'd like to hear from an expert.

By contrast, the VMMXX yield seems to be tracking along with the Fed increases, and the Fed Dot Plot, suggests that future increases, are for real, so cash could be earning a few percent in a few years, up from 1bp 2 years ago.

It's easy to move money around, so you can pick whatever happens to be the best interest, but I'm also interested in the theoretical question of what drives yields on Money Market versus online savings.
(Typo edited.)
Last edited by *3!4!/5! on Fri Jun 16, 2017 10:54 pm, edited 1 time in total.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby sport » Thu Jun 15, 2017 9:25 pm

*3!4!/5! wrote:but I'm also interested in the theoretical quation of what drives yields on Money Market versus online savings.

Money market funds yield the actual market, less the expense ratio. Banks pay whatever they decide to pay. They consider things like the competition from other banks, and inertia in their customers. If they keep the rates lower than market rates, and they do not lose too much business because of that, it is more profitable to not raise the rates they pay, or delay such raises.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby CFM300 » Thu Jun 15, 2017 10:50 pm

*3!4!/5! wrote:CapitalOne 360 Savings has been stuck at 0.75% for a while

CapitalOne 360 MONEY MARKET accounts have been paying 1.00% for more than a year for balances > $10k.

https://www.capitalone.com/online-money-market-account/

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby White Coat Investor » Thu Jun 15, 2017 11:44 pm

aj76er wrote:
White Coat Investor wrote:I've spent a lot of time thinking about this and was way too slow to move to savings accounts 8 years ago so I was Johnny on the spot moving back this Spring.


Are you saying that you have already moved from Savings Account (e.g. Ally) to VMMXX for cash?


Kind of. I'm in the tax exempt MMF. High tax bracket fortunately/unfortunately.
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby MIpreRetirey » Fri Jun 16, 2017 1:35 am

Yep. VMMXX climbing pretty quick. Looked at distrib. That yield was about .7% 1st of year.
Should see 1 mo and 3 month change in yield on 3 mo. US treas.:

http://quotes.wsj.com/bond/BX/TMUBMUSD03M .

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby *3!4!/5! » Fri Jun 16, 2017 1:51 am

MIpreRetirey wrote:Yep. VMMXX climbing pretty quick. Looked at distrib. That yield was about .7% 1st of year.
Should see 1 mo and 3 month change in yield on 3 mo. US treas.:

http://quotes.wsj.com/bond/BX/TMUBMUSD03M .


Yes those are a good comparison.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby heikejohn1 » Fri Jun 16, 2017 5:59 am

Discover bank pays 1.1%
As soon as Vanguard pays over Discover, I'm switching back.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Eric76 » Fri Jun 16, 2017 6:18 am

I would need a whole lot of cash for it to make sense chasing 10 or 20 bp. And if I did accumulate that much cash, I probably wouldn't be keeping it in cash!

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Boglehawk » Fri Jun 16, 2017 7:10 am

White Coat Investor wrote:
aj76er wrote:
White Coat Investor wrote:I've spent a lot of time thinking about this and was way too slow to move to savings accounts 8 years ago so I was Johnny on the spot moving back this Spring.


Are you saying that you have already moved from Savings Account (e.g. Ally) to VMMXX for cash?


Kind of. I'm in the tax exempt MMF. High tax bracket fortunately/unfortunately.


I'm debating on moving my emergency fund from my bank savings at 0.80% to a Vanguard money market fund.

I'm trying to decide between the following:
(1) Vanguard Prime Money Market Fund (VMMXX) - 1.00% yield (0.16% ER)
(2) Vanguard Municipal Money Market Fund (VMSXX) - 0.66% yield (0.15% ER)
(3) Vanguard Pennsylvania Municipal Money Market (VPTXX) - 0.60% yield (0.16% ER)

I'm in the 33% federal tax bracket and my state tax is 3.07%. Based on my calculations, it looks like I will get the best after tax returns from the Municipal Money Market Fund. Is that correct? Are there any other issues that I should be considering?

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby White Coat Investor » Fri Jun 16, 2017 8:01 am

Nope, looks like you're considering everything. I think your math is right too, but didn't actually check it.
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby rkhusky » Fri Jun 16, 2017 8:11 am

Boglehawk wrote:I'm in the 33% federal tax bracket and my state tax is 3.07%. Based on my calculations, it looks like I will get the best after tax returns from the Municipal Money Market Fund. Is that correct? Are there any other issues that I should be considering?

They all look to be about the same to me (after tax 0.64%, 0.64%, 0.60%).
Last edited by rkhusky on Fri Jun 16, 2017 8:16 am, edited 1 time in total.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Boglehawk » Fri Jun 16, 2017 8:16 am

rkhusky wrote:
Boglehawk wrote:I'm in the 33% federal tax bracket and my state tax is 3.07%. Based on my calculations, it looks like I will get the best after tax returns from the Municipal Money Market Fund. Is that correct? Are there any other issues that I should be considering?

Would the interest in the Tax Exempt MMF be exempt from your state tax? If not, then they look to be about the same.


Yes, it would. Nonetheless, I still think I come out slightly ahead with the non-Pa Municipal MM because its yield is 0.06% higher than the PA MM. Again, if I'm wrong about that, please let me know. I realize I'm probably splitting hairs here, but I'm just trying to educate myself on how to calculate after-tax returns.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kenkat » Fri Jun 16, 2017 8:20 am

*3!4!/5! wrote:
Kenkat wrote:I moved all my reserve cash from CapitalOne 360 Savings to Prime MM a couple of weeks ago.


CapitalOne 360 Savings has been stuck at 0.75% for a while, while other online savings are 1%+ and edging up slightly. But the online savings yields haven't budged much, so I wonder what the dynamics are. The online banks might want to enjoy a wider spread, without passing on the interest increases (unless competition makes them increase). I'm totally guessing, so I'd like to hear from an expert.

By contrast, the VMMXX yield seems to be tracking along with the Fed increases, and the Fed Dot Plot, suggests that future increases, are for real, so cash could be earning a few percent in a few years, up from 1bp 2 years ago.

It's easy to move money around, so you can pick whatever happens to be the best interest, but I'm also interested in the theoretical quation of what drives yields on Money Market versus online savings.


Yes, I am interested in that dynamic as well - when I closed the CapitalOne account, it asked why and I selected "found a better rate". I've got to think that at some point CapitalOne will have to raise rates. They did start promoting their money market fund at 1% more aggressively but watching Prime MM's rate rise, I figured it would be a short time before it exceeded that and so I figured I would just move the money once and prefer things to be at Vanguard as a general rule.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby rkhusky » Fri Jun 16, 2017 8:22 am

Boglehawk wrote:Yes, it would.

I edited above while you were responding. Assumed (1) subject to 36% tax, (2) subject to 3% tax, (3) subject to 0% tax. Unless you expect to have a lot in the fund ($100K+), 0.04% difference is not that big. I would look at the historical differences in returns to see how much you might expect the difference to be and the quality/risk of the funds.
Last edited by rkhusky on Fri Jun 16, 2017 8:26 am, edited 2 times in total.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby jebmke » Fri Jun 16, 2017 8:24 am

I don't park enough cash to make a difference. If my balance in my AMEX account reached mid 5 figures that would be high.

For larger amounts on the low duration end I like Limited Term TE Admiral. ~ 1.25% after tax.
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Boglehawk » Fri Jun 16, 2017 8:27 am

rkhusky wrote:
Boglehawk wrote:I'm in the 33% federal tax bracket and my state tax is 3.07%. Based on my calculations, it looks like I will get the best after tax returns from the Municipal Money Market Fund. Is that correct? Are there any other issues that I should be considering?

They all look to be about the same to me (after tax 0.64%, 0.64%, 0.60%).


Wouldn't the after tax returns on the two municipal MMs be higher based on the fact that I would not pay taxes on them? I recall seeing somewhere on this forum that after tax returns should be calculated by taking the yield and dividing it by [1 minus the relevant tax rate].

Using my tax brackets as an example, wouldn't the after-tax returns for the municipal MMs be calculated as follows:
Pa MM: 0.60/0.64 = 0.94%
Non-Pa MM: 0.66/0.67 = 0.98% [minus 0.0307% state tax] = ~0.95%

Again, please let me know if I'm mistaken about this.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby rkhusky » Fri Jun 16, 2017 8:41 am

Boglehawk wrote:Wouldn't the after tax returns on the two municipal MMs be higher based on the fact that I would not pay taxes on them? I recall seeing somewhere on this forum that after tax returns should be calculated by taking the yield and dividing it by [1 minus the relevant tax rate].

Using my tax brackets as an example, wouldn't the after-tax returns for the municipal MMs be calculated as follows:
Pa MM: 0.60/0.64 = 0.94%
Non-Pa MM: 0.66/0.67 = 0.98% [minus 0.0307% state tax] = ~0.95%

Your after tax return on the PA MM is definitely not 0.94%.

Suppose you have $100 in each of the accounts. In (1) you get $1 in interest, but have to pay 36% tax leaving you $0.64. In (2) you get $0.66 in interest but have to pay 3% tax, leaving $0.64. In (3) you get $0.60 interest and pay no tax.

After tax should be Interest Rate * (1 - Tax Rate).

The ratios you calculated are what you would compare to (1) to see which is better (you shouldn't subtract state in Non-Pa MM). The ratios show that (1) is a little better than (3) and (1) is slightly better than (2) but probably within round error (the ratio is actually 0.985%)
Last edited by rkhusky on Fri Jun 16, 2017 8:53 am, edited 2 times in total.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby not4me » Fri Jun 16, 2017 8:52 am

*3!4!/5! wrote:
Thoughts? Can anyone explain what exactly pushes Money Market yields versus what pushes online savings yields?


Several have mentioned that money market reflects "THE" market -- & I'd be curious which market that is. My take is a tad different. Both banks and providers of money market 'funds' (more on that shortly) are reacting to supply & demand.

The term money market is really too broad for detail comparison of where rates are headed. To most people, the underlying differences aren't vital, but the government has regulations that make the drivers drive. There are retail, government, & institutional money market funds; not to be confused with online money market accounts which may have some FDIC protection (I think). Savings accounts (online or not) are different yet. There are differences in what they use the money for, rules for liquidity, credit quality, etc.

Different types of companies (ie banks, providers of revolving credit, etc) have different sources of funds & different uses. The availability of capital & demand for their products is a wide ranging dynamic.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby lazyday » Fri Jun 16, 2017 9:32 am

I never understood why people like this fund at times that it has higher risk and lower return than other choices. Like right now.

You can get 1.25% to 1.35% returns at a few online banks today. FDIC insured.

For money that's already sitting at Vanguard that we don't want to move to a bank, we could buy 3 month Treasury bills. 1.02% return and lower risk than VG MM.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Theoretical » Fri Jun 16, 2017 9:34 am

Well, short term credit risk tends to pay off.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby House Blend » Fri Jun 16, 2017 9:37 am

Boglehawk wrote:I'm trying to decide between the following:
(1) Vanguard Prime Money Market Fund (VMMXX) - 1.00% yield (0.16% ER)
(2) Vanguard Municipal Money Market Fund (VMSXX) - 0.66% yield (0.15% ER)
(3) Vanguard Pennsylvania Municipal Money Market (VPTXX) - 0.60% yield (0.16% ER)

I'm in the 33% federal tax bracket and my state tax is 3.07%. Based on my calculations, it looks like I will get the best after tax returns from the Municipal Money Market Fund. Is that correct? Are there any other issues that I should be considering?

If you owe AMT, then some of the muni MMF interest is not tax-exempt.
https://personal.vanguard.com/us/insigh ... tments-AMT

Last year, about 13% of the interest would have been taxable under AMT.

FWIW, Prime and Municipal look about the same for you at the moment. IMO, there's no point in getting worked up over a difference of a basis point or two, especially since yields aren't static in the first place. But if you do expect to pay AMT, I would go with Prime.

My case:
I no longer have or need an emergency fund, but do maintain a small buffer of cash reserves, for situations where I need to keep the wheels of cash flow greased. In the past I've used MMFs or high yield savings accounts for this purpose. But several years ago, I switched to using the Limited Term Tax-Exempt muni fund.

No AMT exposure. No frequent trading limits. (All short term bond funds at VG share that feature.) The dividends go straight to my checking account. The only downsides are of course the fluctuating NAV, and slightly messier tax reporting if/when I make withdrawals.

If MMFs start yielding more after tax for me than Limited Term, I'll be surprised.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby lazyday » Fri Jun 16, 2017 9:57 am

Theoretical wrote:Well, short term credit risk tends to pay off.

Maybe in general, but this fund with lower yield than a bank account won't.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby rkhusky » Fri Jun 16, 2017 10:37 am

lazyday wrote:I never understood why people like this fund at times that it has higher risk and lower return than other choices. Like right now.

You can get 1.25% to 1.35% returns at a few online banks today. FDIC insured.

For money that's already sitting at Vanguard that we don't want to move to a bank, we could buy 3 month Treasury bills. 1.02% return and lower risk than VG MM.

Ease of use. No cap gains. Generally has less than $10K, so don't care about 0.2% rate difference.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Munir » Fri Jun 16, 2017 10:59 am

GS bank (Goldman Sachs) is now paying 1.2% on its online savings account.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kevin M » Fri Jun 16, 2017 11:01 am

Boglehawk wrote:Nonetheless, I still think I come out slightly ahead with the non-Pa Municipal MM because its yield is 0.06% higher than the PA MM. Again, if I'm wrong about that, please let me know. I realize I'm probably splitting hairs here, but I'm just trying to educate myself on how to calculate after-tax returns.

The yields are:

1.00% - Prime MM
0.66% - Muni MM
0.60% - PA Muni MM

As already mentioned, in general, after-tax yield = pre-tax yield * (1-tax rate). Often people express it the other way around, converting muni yield to taxable-equivalent yield, in which case TEY = muni yield / (1 - tax rate). These formulas work for national muni funds, since the federal tax rate is all that's involved.

For state muni funds, the formula is different depending on whether or not you itemize your deductions. If you itemize, TEY is lower because the deduction for state tax lowers the net federal tax applied to your fully taxable yields.

If you don't itemize, TEY for state muni fund = muni yield / (1 - ft - st), where ft = federal tax rate and st = state tax rate. If you itemize, TEY = muni yield / (1 - ft - st + ft*st), which also can be written as TEY = muni yield / ( (1-ft)*(1-st) ). Using these formulas, the TEYs are:

1.00% - Prime MM
0.99% - Muni MM
0.94% - PA MM, no itemize (standard deduction)
0.92% - PA MM, itemize deductions

If you want to express yields as after-tax yields instead:

0.65% - Prime MM, itemize deductions
0.64% - Prime MM, standard deduction
0.64% - Muni MM
0.60% - PA MM

So if you itemize deductions, which you probably do at those tax rates, Prime MM is just a hair better than the Muni MM, and if you don't itemize they are the same to two decimal places. The PA Muni MM has the lowest taxable-equivalent yield whether you itemize or not.

None of this factors in the AMT issue raised by House Blend. Also, these rates can change daily, so things could be different tomorrow (or a week from now).

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Munir » Fri Jun 16, 2017 11:02 am

lazyday wrote:I never understood why people like this fund at times that it has higher risk and lower return than other choices. Like right now.

You can get 1.25% to 1.35% returns at a few online banks today. FDIC insured.

For money that's already sitting at Vanguard that we don't want to move to a bank, we could buy 3 month Treasury bills. 1.02% return and lower risk than VG MM.


Can you please name some of the online banks that have 1.25-1.35% rates?

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Boglehawk » Fri Jun 16, 2017 11:13 am

Kevin M wrote:
Boglehawk wrote:Nonetheless, I still think I come out slightly ahead with the non-Pa Municipal MM because its yield is 0.06% higher than the PA MM. Again, if I'm wrong about that, please let me know. I realize I'm probably splitting hairs here, but I'm just trying to educate myself on how to calculate after-tax returns.

The yields are:

1.00% - Prime MM
0.66% - Muni MM
0.60% - PA Muni MM

As already mentioned, in general, after-tax yield = pre-tax yield * (1-tax rate). Often people express it the other way around, converting muni yield to taxable-equivalent yield, in which case TEY = muni yield / (1 - tax rate). These formulas work for national muni funds, since the federal tax rate is all that's involved.

For state muni funds, the formula is different depending on whether or not you itemize your deductions. If you itemize, TEY is lower because the deduction for state tax lowers the net federal tax applied to your fully taxable yields.

If you don't itemize, TEY for state muni fund = muni yield / (1 - ft - st), where ft = federal tax rate and st = state tax rate. If you itemize, TEY = muni yield / (1 - ft - st + ft*st), which also can be written as TEY = muni yield / ( (1-ft)*(1-st) ). Using these formulas, the TEYs are:

1.00% - Prime MM
0.99% - Muni MM
0.94% - PA MM, no itemize (standard deduction)
0.92% - PA MM, itemize deductions

If you want to express yields as after-tax yields instead:

0.65% - Prime MM, itemize deductions
0.64% - Prime MM, standard deduction
0.64% - Muni MM
0.60% - PA MM

So if you itemize deductions, which you probably do at those tax rates, Prime MM is just a hair better than the Muni MM, and if you don't itemize they are the same to two decimal places. The PA Muni MM has the lowest taxable-equivalent yield whether you itemize or not.

None of this factors in the AMT issue raised by House Blend. Also, these rates can change daily, so things could be different tomorrow (or a week from now).

Kevin


Thanks for breaking this down, Kevin. I really appreciate it.

I do itemize my taxes and am subject to AMT. Based on this, it looks like Prime MM will work best for me given the current yields. Because these numbers are so close, it probably doesn't make much of a difference one way or the other. Nonetheless, thanks again for explaining how these calculations work.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby mikep » Fri Jun 16, 2017 11:16 am

Still like my reward checking at 3.09% for 12 debits (30 seconds of online $1 purchases) per month.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kevin M » Fri Jun 16, 2017 11:37 am

Munir wrote: Can you please name some of the online banks that have 1.25-1.35% rates?

Savings Account Rates | DepositAccounts.com. I don't see 1.35%, but I see three at 1.30% and three at 1.25%.

You can get 1.35% for minimum of $25K in a no-penalty 11-month CD at Ally Bank. You must wait six days to do early withdrawals, but after that it's essentially a savings account, except that you can't do partial withdrawals. I opened two @$25K each this week.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby lazyday » Fri Jun 16, 2017 11:43 am

rkhusky wrote:Generally has less than $10K, so don't care about 0.2% rate difference.

Makes sense.

Munir wrote:Can you please name some of the online banks that have 1.25-1.35% rates?

Take a look at https://www.depositaccounts.com/blog/ba ... ts-survey/

I haven't looked into them, but there are a few that don't seem to be just promo rates.

Self-Help Federal Credit Union ... 1.31% ($500) Money Market - Account review
DollarSavingsDirect 1.30% (no min) Dollar Savings Account - Account review
BankPurely 1.30% ($1 min) SavingPurely - Account review
ableBanking 1.30% ($250 min) Money Market Savings - Account review


Ally also has 1.35% on an 11 month CD with no penalties for early withdrawal, but not for an IRA and has $25000 minimum.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Munir » Fri Jun 16, 2017 12:04 pm

Munir wrote:
lazyday wrote:I never understood why people like this fund at times that it has higher risk and lower return than other choices. Like right now.

You can get 1.25% to 1.35% returns at a few online banks today. FDIC insured.

For money that's already sitting at Vanguard that we don't want to move to a bank, we could buy 3 month Treasury bills. 1.02% return and lower risk than VG MM.


Can you please name some of the online banks that have 1.25-1.35% rates?


I was searching for regular savings accounts from a reputable bank with no minimum and no penalties (and not CDs). The highest rate I had seen was GS Bank (Goldman Sachs) at 1.2%. I apologize for not being clear in my question.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby lazyday » Fri Jun 16, 2017 12:13 pm

If you haven't looked at ally in a while, they now allow you to close a cd online before maturity, and it seems that the funds are available immediately. The 11 month has no penalty for early withdrawal.

But of course you can't make autopayments from it or write checks from it, so it's not really a replacement for a checking or savings account.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby The Dan » Fri Jun 16, 2017 12:22 pm

Kevin M wrote:
Munir wrote: Can you please name some of the online banks that have 1.25-1.35% rates?

Savings Account Rates | DepositAccounts.com. I don't see 1.35%, but I see three at 1.30% and three at 1.25%.

You can get 1.35% for minimum of $25K in a no-penalty 11-month CD at Ally Bank. You must wait six days to do early withdrawals, but after that it's essentially a savings account, except that you can't do partial withdrawals. I opened two @$25K each this week.

Kevin

Here's another option: You can get 1.4% APY at Barclays with a 12-month CD, no minimum, and the penalty for early withdrawal is only 3-months interest.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kenkat » Fri Jun 16, 2017 12:29 pm

lazyday wrote:I never understood why people like this fund at times that it has higher risk and lower return than other choices. Like right now.

You can get 1.25% to 1.35% returns at a few online banks today. FDIC insured.

For money that's already sitting at Vanguard that we don't want to move to a bank, we could buy 3 month Treasury bills. 1.02% return and lower risk than VG MM.


Because there is a very good chance that in an environment where rates are rising, the yield on Prime MM will be above 1.02% (T-bills) or 1.2% (online banks) in 3 months, so you are back to chasing rates.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby aj76er » Fri Jun 16, 2017 12:35 pm

Kevin M wrote: I opened two @$25K each this week.

Kevin


I just did this as well. Thanks for sharing!
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby lazyday » Fri Jun 16, 2017 1:26 pm

Kevin M wrote:
Munir wrote: Can you please name some of the online banks that have 1.25-1.35% rates?

Savings Account Rates | DepositAccounts.com. I don't see 1.35%, but I see three at 1.30% and three at 1.25%.

You can get 1.35% for minimum of $25K in a no-penalty 11-month CD at Ally Bank. You must wait six days to do early withdrawals, but after that it's essentially a savings account, except that you can't do partial withdrawals. I opened two @$25K each this week.

Kevin

I was typing at the same time as you and didn't see your reply earlier.

Yes, that's the 1.35 I was thinking of. And my "not a savings account" wasn't meant for you :) I figure it's pretty close to a savings account.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kevin M » Fri Jun 16, 2017 1:38 pm

The Dan wrote:
Kevin M wrote:You can get 1.35% for minimum of $25K in a no-penalty 11-month CD at Ally Bank. You must wait six days to do early withdrawals, but after that it's essentially a savings account, except that you can't do partial withdrawals. I opened two @$25K each this week.

Kevin

Here's another option: You can get 1.4% APY at Barclays with a 12-month CD, no minimum, and the penalty for early withdrawal is only 3-months interest.

Different animals entirely. I'll probably break at least one of the CDs within 2-3 months, and maybe both. That would result in a negative or 0% yield with the Barclays CD, while it will still be a 1.35% APY with the Ally CD. Breaking the Barclays CD anytime before maturity results in a lower yield--even at 11 months you end up with an APY of 1.02%, so even less than a savings account: CD Early Withdrawal Penalty Calculator.

The Ally no-penalty CD is essentially a cash equivalent--i.e., no term risk--but with a minimum purchase requirement ($25K to get the good rate), a 6-day no-withdrawal period, and an all-or-none withdrawal policy. You can do just about as well at a few other banks with just a savings account (without the constraints), but if you already have an account at Ally, opening up one or two of these CDs is easier and faster than opening another account and moving money between banks.

Kevin
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kevin M » Fri Jun 16, 2017 1:53 pm

To keep things in perspective, the difference in interest between 1.05% and 1.35% APY on $50K for 60 days is only about $24. But it only takes about 5 minutes to open the CD online (or two if you want to open two at the same time), so that's about $292/hour. Well, maybe another 5 minutes to break the CD, so let's say $146/hour.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby rkhusky » Fri Jun 16, 2017 2:38 pm

Kevin M wrote:To keep things in perspective, the difference in interest between 1.05% and 1.35% APY on $50K for 60 days is only about $24. But it only takes about 5 minutes to open the CD online (or two if you want to open two at the same time), so that's about $292/hour. Well, maybe another 5 minutes to break the CD, so let's say $146/hour.

Kevin

From where did you get the $50K? Was it sitting in cash at Ally?

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby House Blend » Fri Jun 16, 2017 2:50 pm

Boglehawk wrote:I do itemize my taxes and am subject to AMT. Based on this, it looks like Prime MM will work best for me given the current yields. Because these numbers are so close, it probably doesn't make much of a difference one way or the other. Nonetheless, thanks again for explaining how these calculations work.

By the way, given that you do pay AMT, it is highly likely that your Federal marginal tax rate is *not* 33%. Best to play with some tax software to see, for example, what it does to your Federal tax bill if you add, say $100, of bank interest to last year's tax return.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kevin M » Fri Jun 16, 2017 3:01 pm

rkhusky wrote:
Kevin M wrote:To keep things in perspective <snip>

From where did you get the $50K? Was it sitting in cash at Ally?

Yes, it was sitting in cash earning 1.05%, and now it is sitting in cash earning 1.35%. As implied in my comment that I'll likely break one or both $25K CDs in 2-3 months, I expect to be using this cash within that timeframe (related to real estate transactions).

I also have a much larger amount in a couple of bond funds (CA int-term and long-term muni funds) that also will likely be mostly if not fully liquidated in that timeframe, so it's not as if I'm avoiding term risk altogether for the funds that will most likely be used in the near term.

Kevin
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby ofckrupke » Fri Jun 16, 2017 4:03 pm

Kevin M wrote:I also have a much larger amount in a couple of bond funds (CA int-term and long-term muni funds) that also will likely be mostly if not fully liquidated in that timeframe, so it's not as if I'm avoiding term risk altogether for the funds that will most likely be used in the near term.


This isn't like you. These must date from the Whitney scare and involve a substantial (for bonds) gain, whose realization in excess to the actual outlay need you'd regret as an unforced error; otherwise this is pure nickel on hot unrolled asphalt.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kevin M » Fri Jun 16, 2017 4:37 pm

ofckrupke wrote:
Kevin M wrote:I also have a much larger amount in a couple of bond funds (CA int-term and long-term muni funds) that also will likely be mostly if not fully liquidated in that timeframe, so it's not as if I'm avoiding term risk altogether for the funds that will most likely be used in the near term.

This isn't like you. These must date from the Whitney scare and involve a substantial (for bonds) gain, whose realization in excess to the actual outlay need you'd regret as an unforced error; otherwise this is pure nickel on hot unrolled asphalt.

It is totally like me! I've maintained an allocation of about 30% of fixed income to bond funds even after I shifted most fixed income to direct CDs, starting about 6.5 years ago, but bond funds are down to about 25% of fixed income at this point. These two CA muni funds are part of that 25%.

My personal rate of return on these two funds over the last five years is 3.6%, so better than my CDs (in return for taking the term risk and some credit risk). Of course the term risk showed up to some extent with fairly big losses (as bond funds go) in November 2016, and to a much lesser extent in September and October, but much of that has been recovered since then. So my 1-year personal rate of return on these two funds is 1.2%--still better than cash, especially considering the tax-free dividends.

Kevin
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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby ofckrupke » Fri Jun 16, 2017 6:01 pm

I don't care so much about your past results as your approach now to likelihood and uncertainty in the outlay requirements of your near future. The mismatch of duration of funds earmarked for an outlay to the anticipated time of that outlay seems particularly severe in this case.

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Boglehawk » Fri Jun 16, 2017 6:14 pm

House Blend wrote:
Boglehawk wrote:I do itemize my taxes and am subject to AMT. Based on this, it looks like Prime MM will work best for me given the current yields. Because these numbers are so close, it probably doesn't make much of a difference one way or the other. Nonetheless, thanks again for explaining how these calculations work.

By the way, given that you do pay AMT, it is highly likely that your Federal marginal tax rate is *not* 33%. Best to play with some tax software to see, for example, what it does to your Federal tax bill if you add, say $100, of bank interest to last year's tax return.


House Blend:

I did what you recommended (added $100 of interest income to my 2016 tax return) and my refund dropped by $35. I assume that means that my marginal tax bracket (when considering AMT) is 35%. Is that correct?

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Re: Vanguard Prime Money Market Fund (VMMXX) breaks 1.00 (% not $)

Postby Kevin M » Fri Jun 16, 2017 6:36 pm

ofckrupke wrote:I don't care so much about your past results as your approach now to likelihood and uncertainty in the outlay requirements of your near future. The mismatch of duration of funds earmarked for an outlay to the anticipated time of that outlay seems particularly severe in this case.

You don't have the entire picture, and this is taking is too far off topic, so let's bring this sub-thread to a close. But your point about matching duration of assets to liabilities is a good one. Suffice it to say that that has been considered.

Kevin
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