Is it time to dump high yield savings for prime money market?

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mbasherp
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Is it time to dump high yield savings for prime money market?

Post by mbasherp » Tue Mar 20, 2018 10:34 am

I've happily watched interest rates on cash come back to life. My "high yield" savings has been with Discover for a long time and is currently at 1.5%. I keep watching Vanguard's Prime Money Market fund VMMXX and its yield seems like it has become the first to move up, in comparison to the FDIC savings accounts.

With a current SEC Yield of 1.61% and a steady ascent, is anyone else dumping the HY savings in favor of MM with their emergency funds and short term cash needs? Is this trend likely to continue? I've read about, but wasn't around for the times when money market rates significantly outperformed savings rates in the early 80's.

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Re: Is it time to dump high yield savings for prime money market?

Post by Bulgogi Head » Tue Mar 20, 2018 10:46 am

If the ER is .16%, does that mean we should consider the yield really at 1.45%?

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Re: Is it time to dump high yield savings for prime money market?

Post by Abe » Tue Mar 20, 2018 10:54 am

Bulgogi Head wrote:
Tue Mar 20, 2018 10:46 am
If the ER is .16%, does that mean we should consider the yield really at 1.45%?
No, the 1.61% is after the .16% ER is factored in.
Slow and steady wins the race.

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Re: Is it time to dump high yield savings for prime money market?

Post by BogleMelon » Tue Mar 20, 2018 11:04 am

In my case I am not sure if 0.16% difference worth the hassle (My savings is earning 1.45% at Ally currently). To make things worse, this 0.16% is taxable so it is only 0.13% ($13 more per year for every $10K also not FDIC) :D
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Re: Is it time to dump high yield savings for prime money market?

Post by dm200 » Tue Mar 20, 2018 11:10 am

BogleMelon wrote:
Tue Mar 20, 2018 11:04 am
In my case I am not sure if 0.16% difference worth the hassle (My savings is earning 1.45% at Ally currently). To make things worse, this 0.16% is taxable so it is only 0.13% ($13 more per year for every $10K also not FDIC) :D
It may also be a temporary different if/when the bank (or credit union) increases the rate.

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Re: Is it time to dump high yield savings for prime money market?

Post by mhadden1 » Tue Mar 20, 2018 11:12 am

I anticipate making changes like this. I am the sort that will accept an extra $20 a month, if I can do it with some mouse clicks while drinking coffee on a rainy morning. For me, not there yet - it could well happen this year.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

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Re: Is it time to dump high yield savings for prime money market?

Post by BogleMelon » Tue Mar 20, 2018 11:22 am

mhadden1 wrote:
Tue Mar 20, 2018 11:12 am
I anticipate making changes like this. I am the sort that will accept an extra $20 a month, if I can do it with some mouse clicks while drinking coffee on a rainy morning. For me, not there yet - it could well happen this year.
The hassle for me is:
- Getting my spouse to know and to remember where our money is, and never forget that, in case I am not around.
- The rates are changing anyways, next week it could be the other way around (banks higher). And to keep move the funds back and forth means lost interest while the money is in the limbo (that 2 days you wait till the money arrives the other institution). 2 days a week, is equal to 104 days of lost interest.
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Re: Is it time to dump high yield savings for prime money market?

Post by blurryvision » Tue Mar 20, 2018 11:55 am

I just moved some money over to CIT Bank, the money market rate is now 1.75%.

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Re: Is it time to dump high yield savings for prime money market?

Post by mhadden1 » Tue Mar 20, 2018 12:28 pm

BogleMelon wrote:
Tue Mar 20, 2018 11:22 am
mhadden1 wrote:
Tue Mar 20, 2018 11:12 am
I anticipate making changes like this. I am the sort that will accept an extra $20 a month, if I can do it with some mouse clicks while drinking coffee on a rainy morning. For me, not there yet - it could well happen this year.
The hassle for me is:
- Getting my spouse to know and to remember where our money is, and never forget that, in case I am not around.
- The rates are changing anyways, next week it could be the other way around (banks higher). And to keep move the funds back and forth means lost interest while the money is in the limbo (that 2 days you wait till the money arrives the other institution). 2 days a week, is equal to 104 days of lost interest.
When I churn bank accounts for bonuses or chase rates, often they require emailed statements and stuff, that I direct to a shared email account. And the accounts usually stay open for at least a few months. Both points are well taken though.
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Re: Is it time to dump high yield savings for prime money market?

Post by rkhusky » Tue Mar 20, 2018 1:41 pm

I've never had high yield savings, it's too much hassle. I've stuck with PMM because it is much easier for buying mutual funds at Vanguard. Of course, now that the rate is going up, I'm keeping for than a minimal amount in the account.

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Re: Is it time to dump high yield savings for prime money market?

Post by pascalwager » Tue Mar 20, 2018 5:15 pm

Prime MM doesn't have FDIC insurance or the protection of Treasury assets.

I get 1.55% at Synchrony Bank, it's been responsive to rising rates and is FDIC insured. And I can't imagine using Prime when the Vanguard Treasury MM is just as conveniently accessible.

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Re: Is it time to dump high yield savings for prime money market?

Post by Doc » Tue Mar 20, 2018 5:26 pm

rkhusky wrote:
Tue Mar 20, 2018 1:41 pm
I've never had high yield savings, it's too much hassle. I've stuck with PMM because it is much easier for buying mutual funds at Vanguard. Of course, now that the rate is going up, I'm keeping for than a minimal amount in the account.
I belive that there is a minimum to open but not a requirement to maintain more than that minimum. On the other hand if you drop below the minimum for an admiral share fund you might get downsized to investor class.

Do I have this right?
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Re: Is it time to dump high yield savings for prime money market?

Post by Kenkat » Tue Mar 20, 2018 6:56 pm

I closed my Capital One 360 savings account last year and moved the proceeds back into Prime MM. I had moved the money out of Prime MM back when interest rates dropped to near zero on it a few years ago.

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Re: Is it time to dump high yield savings for prime money market?

Post by rkhusky » Tue Mar 20, 2018 7:01 pm

Doc wrote:
Tue Mar 20, 2018 5:26 pm
rkhusky wrote:
Tue Mar 20, 2018 1:41 pm
I've never had high yield savings, it's too much hassle. I've stuck with PMM because it is much easier for buying mutual funds at Vanguard. Of course, now that the rate is going up, I'm keeping for than a minimal amount in the account.
I belive that there is a minimum to open but not a requirement to maintain more than that minimum. On the other hand if you drop below the minimum for an admiral share fund you might get downsized to investor class.

Do I have this right?
I meant minimal as in a small amount, i.e. a few thousand. But I think you're right that you can let the balance drop once you've got it open. I haven't been able to quite reach Admiral status yet.

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Re: Is it time to dump high yield savings for prime money market?

Post by kappy » Tue Mar 20, 2018 7:01 pm

I still hold some in Ally but I moved most of my online savings account to PMM a couple weeks ago.

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Re: Is it time to dump high yield savings for prime money market?

Post by SeeMoe » Tue Mar 20, 2018 10:32 pm

Abe wrote:
Tue Mar 20, 2018 10:54 am
Bulgogi Head wrote:
Tue Mar 20, 2018 10:46 am
If the ER is .16%, does that mean we should consider the yield really at 1.45%?
No, the 1.61% is after the .16% ER is factored in.
Thank you! I always assumed the 0.16% annual Prime MM fee was not included in the current daily value of this money market fund.

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Re: Is it time to dump high yield savings for prime money market?

Post by SeeMoe » Tue Mar 20, 2018 10:37 pm

Kenkat wrote:
Tue Mar 20, 2018 6:56 pm
I closed my Capital One 360 savings account last year and moved the proceeds back into Prime MM. I had moved the money out of Prime MM back when interest rates dropped to near zero on it a few years ago.

Did essentially the same thing. Now we are plowing extra bucks into our Prime MM fund as well.

SeeMoe.. :dollar
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Re: Is it time to dump high yield savings for prime money market?

Post by bhsince87 » Tue Mar 20, 2018 10:39 pm

BogleMelon wrote:
Tue Mar 20, 2018 11:04 am
In my case I am not sure if 0.16% difference worth the hassle (My savings is earning 1.45% at Ally currently). To make things worse, this 0.16% is taxable so it is only 0.13% ($13 more per year for every $10K also not FDIC) :D
Your savings account is taxable too.
BH87

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Re: Is it time to dump high yield savings for prime money market?

Post by Valuethinker » Wed Mar 21, 2018 5:06 am

mbasherp wrote:
Tue Mar 20, 2018 10:34 am
I've happily watched interest rates on cash come back to life. My "high yield" savings has been with Discover for a long time and is currently at 1.5%. I keep watching Vanguard's Prime Money Market fund VMMXX and its yield seems like it has become the first to move up, in comparison to the FDIC savings accounts.

With a current SEC Yield of 1.61% and a steady ascent, is anyone else dumping the HY savings in favor of MM with their emergency funds and short term cash needs? Is this trend likely to continue? I've read about, but wasn't around for the times when money market rates significantly outperformed savings rates in the early 80's.
Is there a risk if the Money Markets freeze again as they did post Lehman? The Primary Reserve Fund was the oldest in the industry and one of the larger-- the freeze hit a lot of people quite hard. Note that as I understand it, the Treasury bailout of MMFs that was enacted would no longer be legal (following a court ruling and changed legislation).

The savings account is FDIC insured?

But a MMF is not?

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Re: Is it time to dump high yield savings for prime money market?

Post by onourway » Wed Mar 21, 2018 5:25 am

There is a risk with the MMF which is not insured. If you'd like to further minimize the risk, choose the Federal MM Fund which trails Prime by ~20bp. Or just use a savings account.

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Re: Is it time to dump high yield savings for prime money market?

Post by BogleMelon » Wed Mar 21, 2018 7:22 am

bhsince87 wrote:
Tue Mar 20, 2018 10:39 pm
BogleMelon wrote:
Tue Mar 20, 2018 11:04 am
In my case I am not sure if 0.16% difference worth the hassle (My savings is earning 1.45% at Ally currently). To make things worse, this 0.16% is taxable so it is only 0.13% ($13 more per year for every $10K also not FDIC) :D
Your savings account is taxable too.
I know, yet still any nominal interest rate variance is not exactly what you get due to taxes on the extra rate too.
Hypothetical example:
- $100 in a 10% APY account is $110 after 1 year before taxes, and is $93.50 $108.50 after taxes assuming 15% tax margin
- $100 in a 15% APY account is $115 after 1 year before taxes, and is $97.75 $112.75 after taxes assuming 15% tax margin

The difference between the 10% APY and the 15% APY should be 5% (or $5) in your pocket because they are both taxed, right? Wrong! The difference between the actual earnings after taxes in both cases is $97.75-$93.50 $112.75-$108.50 = $4.25 ($4.25/$100=4.25%) only

In other words, it is 5%-(5%*15%)=4.25%
Last edited by BogleMelon on Wed Mar 28, 2018 9:07 am, edited 1 time in total.
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Re: Is it time to dump high yield savings for prime money market?

Post by Marjimmy » Wed Mar 21, 2018 7:35 am

Doc wrote:
Tue Mar 20, 2018 5:26 pm
rkhusky wrote:
Tue Mar 20, 2018 1:41 pm
I've never had high yield savings, it's too much hassle. I've stuck with PMM because it is much easier for buying mutual funds at Vanguard. Of course, now that the rate is going up, I'm keeping for than a minimal amount in the account.
I belive that there is a minimum to open but not a requirement to maintain more than that minimum. On the other hand if you drop below the minimum for an admiral share fund you might get downsized to investor class.

Do I have this right?
To my understanding, yes. This is also how I interpreted it.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Is it time to dump high yield savings for prime money market?

Post by sperry8 » Wed Mar 21, 2018 7:39 am

Now that Prime is at 1.63% it's quite competitive again (after years of not being so). Still, online banks offer as high as 1.85% as of today. Most of my online banks are at 1.75% APY (CIT Bank, Ally no penalty CD), so no I won't switch. That said, as dividends are paid out I am much more likely to just keep the money in VG Prime now, at least at smaller amounts.
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Re: Is it time to dump high yield savings for prime money market?

Post by BogleMelon » Wed Mar 21, 2018 7:50 am

sperry8 wrote:
Wed Mar 21, 2018 7:39 am
Now that Prime is at 1.63% it's quite competitive again (after years of not being so). Still, online banks offer as high as 1.85% as of today. Most of my online banks are at 1.75% APY (CIT Bank, Ally no penalty CD), so no I won't switch. That said, as dividends are paid out I am much more likely to just keep the money in VG Prime now, at least at smaller amounts.
Speaking about Ally and CIT, since you have both accounts, would you please advise on how they both compare? I have my savings in Ally, but being slow in moving rates, I was thinking to move the money to CIT.. Thanks!
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Re: Is it time to dump high yield savings for prime money market?

Post by sperry8 » Wed Mar 21, 2018 7:55 am

BogleMelon wrote:
Wed Mar 21, 2018 7:50 am
sperry8 wrote:
Wed Mar 21, 2018 7:39 am
Now that Prime is at 1.63% it's quite competitive again (after years of not being so). Still, online banks offer as high as 1.85% as of today. Most of my online banks are at 1.75% APY (CIT Bank, Ally no penalty CD), so no I won't switch. That said, as dividends are paid out I am much more likely to just keep the money in VG Prime now, at least at smaller amounts.
Speaking about Ally and CIT, since you have both accounts, would you please advise on how they both compare? I have my savings in Ally, but being slow in moving rates, I was thinking to move the money to CIT.. Thanks!
I use Ally as my hub account since they have a great ACH system. I use it to transfer money to/from my other online bank accounts. They have excellent CS and a great website. However, as you note they don't always have the best rates (although sometimes they do - such as their recent no-penalty CD). CIT Bank recently revamped their website so it is modestly better. But still nowhere as good or helpful as Ally (e.g., modifying beneficiaries online and tax forms are missing). That said, their rates are higher and when an online bank who is FDIC insured has higher rates I generally use them regardless of how poor their website is. I then use Ally to transfer to/from which usually results in 1 day ACH transfers.
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Re: Is it time to dump high yield savings for prime money market?

Post by nisiprius » Wed Mar 21, 2018 7:56 am

I can't imagine devoting very much thought to this, but then again I have both a decent savings account (Capital One 360 "Money market", currently earning 1.5%) and an established Vanguard Prime Money Market Account. I've made a point of keeping almost nothing in the money market account. Now, instead of periodically pushing money that's leaked into the settlement account out into the bank, hey, maybe I'll just push it into Prime.

I have a preference for bank accounts due to FDIC insurance, and a feeling (yes, seriously) that money market mutual funds were "conceived in sin" because they were an intentional effort to provide banking services while evading banking regulations. I think Money market mutual funds are "safe," but the safety relies on voluntary prudence and good behavior on the part of the fund managers. It took those chickens a long time to come home to roost, but they did in 2008 with the failure of the Reserve Primary Money Market fund, ironically the grandaddy of them all. It's not enough to stop me from moving to a money market mutual fund if the interest rate widens enough, but I perceive there as being a tiny bit of extra risk, and I want to be sure I'm getting a commensurate amount of extra reward.

Personally, not defending this but just stating it, I don't bother to do anything until a gap of 0.50% to 0.75% opens up between the interest rate I'm getting here and the interest rate I could be getting there, and stays open for quite a while. I have too many old checkbooks littering one of my drawers from accounts I opened to get a marginally better rate, only to have the gap promptly close up (sometimes from the new institution easing off on what turned out to be a teaser deal, sometimes from the old institution finally getting competitive).

And, yes, color me xenophobic but it makes me just a bit nervous to see the extent to which Vanguard (and other?) money market mutual funds are investing overseas. Prime Money Market is currently showing 43% "Yankee/foreign." I have a decent amount of trust in Vanguard's prudence, but 43% international is one thing in stocks where you are expecting a lot of risk, and something else in a money market mutual fund where you are expecting something close to zero risk. Is the Nederlandse Waterschapsbank NV OK? Probably, hey, the Dutch are, you know, Santa Claus, wooden shoes, big mercantile power in the age of sail, tulip mania... probably fine. Bank of Nova Scotia? Canada is practically the same as the US and, great smoked salmon. Sumitomo Mitsui Banking Corp, New York Branch? Well if the branch is in New York... I mean to say... it's probably all just fine but how the heck would I know?
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Re: Is it time to dump high yield savings for prime money market?

Post by Doc » Wed Mar 21, 2018 8:27 am

nisiprius wrote:
Wed Mar 21, 2018 7:56 am
I have a preference for bank accounts due to FDIC insurance, and a feeling (yes, seriously) that money market mutual funds were "conceived in sin" because they were an intentional effort to provide banking services while evading banking regulations.
Definitely designed to evade banking regs. My original money market "checking" account was in actuality a savings account of sorts and the checks, aka drafts, were actually loans that incurred no interest if you "paid them off" in the following month which was very easy since the money was already there in the account. All you had to do was tell them to "do it". (By snail mail of course. No internet in those forgotten times.)
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Re: Is it time to dump high yield savings for prime money market?

Post by Valuethinker » Wed Mar 21, 2018 8:38 am

nisiprius wrote:
Wed Mar 21, 2018 7:56 am


And, yes, color me xenophobic but it makes me just a bit nervous to see the extent to which Vanguard (and other?) money market mutual funds are investing overseas. Prime Money Market is currently showing 43% "Yankee/foreign." I have a decent amount of trust in Vanguard's prudence, but 43% international is one thing in stocks where you are expecting a lot of risk, and something else in a money market mutual fund where you are expecting something close to zero risk. Is the Nederlandse Waterschapsbank NV OK? Probably, hey, the Dutch are, you know, Santa Claus, wooden shoes, big mercantile power in the age of sail, tulip mania... probably fine. Bank of Nova Scotia? Canada is practically the same as the US and, great smoked salmon. Sumitomo Mitsui Banking Corp, New York Branch? Well if the branch is in New York... I mean to say... it's probably all just fine but how the heck would I know?
Not xenophobia but normal prudence.

Heck, I *banked* at Scotiabank, and I think that's (a teeny little bit) risky. The bank is totally pukka (it's one of the few banks in the world that has (had) a gold dealing license in London and (I think) New York - Britain's gold reserves were stored there during WW2). On the other hand, all Canadian banks are heavily exposed to the residential property market lending.

But foreign subsidiaries of banks can do strange things.

Safety over return for short term funds.

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Re: Is it time to dump high yield savings for prime money market?

Post by Valuethinker » Wed Mar 21, 2018 8:49 am

Doc wrote:
Wed Mar 21, 2018 8:27 am
nisiprius wrote:
Wed Mar 21, 2018 7:56 am
I have a preference for bank accounts due to FDIC insurance, and a feeling (yes, seriously) that money market mutual funds were "conceived in sin" because they were an intentional effort to provide banking services while evading banking regulations.
Definitely designed to evade banking regs. My original money market "checking" account was in actuality a savings account of sorts and the checks, aka drafts, were actually loans that incurred no interest if you "paid them off" in the following month which was very easy since the money was already there in the account. All you had to do was tell them to "do it". (By snail mail of course. No internet in those forgotten times.)
I think the interest payable limit was 5%.

Eventually the S&Ls lobbied the government to remove that restriction. Then to pay the higher rates to attract savings, they got into junk bond investing as well as property lending in a big way. And so the setting was set for the S&L debacle, the forerunner to the Great Financial Crisis-- essentially it brought down the first President Bush (due to the associated recession or "it's the economy, stupid" in James Carville's words).

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Re: Is it time to dump high yield savings for prime money market?

Post by dkturner » Wed Mar 21, 2018 10:43 am

For most of us it depends on a combination of yield, security and convenience. Personally I prefer the Vanguard Advantage Account to online bank money market accounts. As to yield the current number for the VAA Account settlement fund is 1.41%, with no fees. The settlement fund is invested in the Federal Money Market Fund, but, with the click of the mouse we can move funds to or from the Prime Money Market Fund with its slightly higher yield. As to security the settlement fund assets are invested in US government securities and repurchase agreements collateralized by US government securities. As to convenience we can write an unlimited number of checks, with no minimum amount, or take advantage of online bill payments. We can “push” or “pull” funds between our VAA Account and our regular bank checking account.

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Re: Is it time to dump high yield savings for prime money market?

Post by aj76er » Wed Mar 21, 2018 11:00 am

Not as convenient, but I'm thinking of rolling my Ally No-Penalty CDs into 3mo. T-bills.
Auction is next week, I think.
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Re: Is it time to dump high yield savings for prime money market?

Post by Clever_Username » Wed Mar 21, 2018 11:06 am

I avoided high yield bank accounts because I had most of my stuff at BofA and it's convenient, and I keep so little money in the bank. Even six month expenses for a while was barely five figures. Having a second bank account, I figured, just wasn't worth my time.

Now three months' expenses are over $15k and I keep it split between BofA and the money market at Vanguard. I get maybe $5/month in interest from the portion at Vanguard, so I'm probably not going to give it any more thought towards where it is... but the thoughts that it isn't as safe (I knew it wasn't FDIC insured, but I don't know the exact risk either) worries me a bit.

I probably still won't give it much more thought.
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Re: Is it time to dump high yield savings for prime money market?

Post by mikep » Wed Mar 21, 2018 11:32 am

Staying put with my CCU reward checking. Prime MM still doesn't even come close to 3.09% with minimal requirements.

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Re: Is it time to dump high yield savings for prime money market?

Post by ajw360 » Wed Mar 21, 2018 2:42 pm

The CIT Bank money market account looks interesting. It currently has a yield of 1.75% APY and is FDIC insured. I currently have my emergency fund in a high yield savings account with them paying 1.55%. I might look at moving my money into the new money market account. I've been really happy with them so far, and I like the peace of mind of having my emergency fund in a FDIC insured account.

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Re: Is it time to dump high yield savings for prime money market?

Post by pascalwager » Wed Mar 21, 2018 9:50 pm

aj76er wrote:
Wed Mar 21, 2018 11:00 am
Not as convenient, but I'm thinking of rolling my Ally No-Penalty CDs into 3mo. T-bills.
Auction is next week, I think.
I did this (T-bills) for 15 years (also 6-mos bills) with 100% of my spare cash: $10k and $20k. I recently looked at the cash heat map on PortfolioCharts website. Shows that it at least beat inflation the whole time. Finally lump summed into stocks.

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Re: Is it time to dump high yield savings for prime money market?

Post by MnD » Thu Mar 22, 2018 11:31 am

pascalwager wrote:
Wed Mar 21, 2018 9:50 pm
aj76er wrote:
Wed Mar 21, 2018 11:00 am
Not as convenient, but I'm thinking of rolling my Ally No-Penalty CDs into 3mo. T-bills.
Auction is next week, I think.
I did this (T-bills) for 15 years (also 6-mos bills) with 100% of my spare cash: $10k and $20k. I recently looked at the cash heat map on PortfolioCharts website. Shows that it at least beat inflation the whole time. Finally lump summed into stocks.
I'm going to do this as part of getting rid of two more financial institutions, a high yield on-line savings account and a brick and mortar checking and savings.

My brokerage has a FDIC bank checking account linked to brokerage with very good terms to replace brick and mortar checking. My high yield (and regular) "savings account" will then be a T-bill ladder in brokerage with automatic reinvest. My brokerage prime purchased money market account is not as good as Vanguard Prime but with this system, I think I will do a bit better than Vanguard Prime. Ditching two more financial institutions and 3 accounts is also big plus in my book. And no state tax on the interest.

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Re: Is it time to dump high yield savings for prime money market?

Post by BogleMelon » Thu Mar 22, 2018 11:44 am

MnD wrote:
Thu Mar 22, 2018 11:31 am
pascalwager wrote:
Wed Mar 21, 2018 9:50 pm
aj76er wrote:
Wed Mar 21, 2018 11:00 am
Not as convenient, but I'm thinking of rolling my Ally No-Penalty CDs into 3mo. T-bills.
Auction is next week, I think.
I did this (T-bills) for 15 years (also 6-mos bills) with 100% of my spare cash: $10k and $20k. I recently looked at the cash heat map on PortfolioCharts website. Shows that it at least beat inflation the whole time. Finally lump summed into stocks.
I'm going to do this as part of getting rid of two more financial institutions, a high yield on-line savings account and a brick and mortar checking and savings.

My brokerage has a FDIC bank checking account linked to brokerage with very good terms to replace brick and mortar checking. My high yield (and regular) "savings account" will then be a T-bill ladder in brokerage with automatic reinvest. My brokerage prime purchased money market account is not as good as Vanguard Prime but with this system, I think I will do a bit better than Vanguard Prime. Ditching two more financial institutions and 3 accounts is also big plus in my book. And no state tax on the interest.
Who is your brokerage?
Also what if you needed one of the T-bills earlier? Is it (liquid) enough?
"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: Is it time to dump high yield savings for prime money market?

Post by grayfox » Thu Mar 22, 2018 11:47 am

mbasherp wrote:
Tue Mar 20, 2018 10:34 am
I've happily watched interest rates on cash come back to life. My "high yield" savings has been with Discover for a long time and is currently at 1.5%. I keep watching Vanguard's Prime Money Market fund VMMXX and its yield seems like it has become the first to move up, in comparison to the FDIC savings accounts.

With a current SEC Yield of 1.61% and a steady ascent, is anyone else dumping the HY savings in favor of MM with their emergency funds and short term cash needs? Is this trend likely to continue? I've read about, but wasn't around for the times when money market rates significantly outperformed savings rates in the early 80's.
Done that.

I only moved to online savings temporarily when I got an offer for $100 free money.

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Re: Is it time to dump high yield savings for prime money market?

Post by pascalwager » Thu Mar 22, 2018 12:10 pm

nisiprius wrote:
Wed Mar 21, 2018 7:56 am
I can't imagine devoting very much thought to this, but then again I have both a decent savings account (Capital One 360 "Money market", currently earning 1.5%) and an established Vanguard Prime Money Market Account. I've made a point of keeping almost nothing in the money market account. Now, instead of periodically pushing money that's leaked into the settlement account out into the bank, hey, maybe I'll just push it into Prime.

I have a preference for bank accounts due to FDIC insurance, and a feeling (yes, seriously) that money market mutual funds were "conceived in sin" because they were an intentional effort to provide banking services while evading banking regulations. I think Money market mutual funds are "safe," but the safety relies on voluntary prudence and good behavior on the part of the fund managers. It took those chickens a long time to come home to roost, but they did in 2008 with the failure of the Reserve Primary Money Market fund, ironically the grandaddy of them all. It's not enough to stop me from moving to a money market mutual fund if the interest rate widens enough, but I perceive there as being a tiny bit of extra risk, and I want to be sure I'm getting a commensurate amount of extra reward.

Personally, not defending this but just stating it, I don't bother to do anything until a gap of 0.50% to 0.75% opens up between the interest rate I'm getting here and the interest rate I could be getting there, and stays open for quite a while. I have too many old checkbooks littering one of my drawers from accounts I opened to get a marginally better rate, only to have the gap promptly close up (sometimes from the new institution easing off on what turned out to be a teaser deal, sometimes from the old institution finally getting competitive).

And, yes, color me xenophobic but it makes me just a bit nervous to see the extent to which Vanguard (and other?) money market mutual funds are investing overseas. Prime Money Market is currently showing 43% "Yankee/foreign." I have a decent amount of trust in Vanguard's prudence, but 43% international is one thing in stocks where you are expecting a lot of risk, and something else in a money market mutual fund where you are expecting something close to zero risk. Is the Nederlandse Waterschapsbank NV OK? Probably, hey, the Dutch are, you know, Santa Claus, wooden shoes, big mercantile power in the age of sail, tulip mania... probably fine. Bank of Nova Scotia? Canada is practically the same as the US and, great smoked salmon. Sumitomo Mitsui Banking Corp, New York Branch? Well if the branch is in New York... I mean to say... it's probably all just fine but how the heck would I know?
Personally, I would avoid all of your reservations by using VG Treasury MM, but I also live in a high tax state so I have an additional incentive.

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Re: Is it time to dump high yield savings for prime money market?

Post by blu9535 » Thu Mar 22, 2018 12:29 pm

Is there anyone that would still advise using short-term bond funds instead of money market funds for the same purposes? Something like VBISX for example, which has a 2.48% 30-day SEC yield according to Vanguard today. Assuming one is okay with the hopefully small risk of loss of principal.

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Re: Is it time to dump high yield savings for prime money market?

Post by Doc » Thu Mar 22, 2018 2:23 pm

blu9535 wrote:
Thu Mar 22, 2018 12:29 pm
Is there anyone that would still advise using short-term bond funds instead of money market funds for the same purposes? Something like VBISX for example, which has a 2.48% 30-day SEC yield according to Vanguard today. Assuming one is okay with the hopefully small risk of loss of principal.
What's your timeframe.

3 month rolling return chart:

Image

3 year rolling return chart:

Image

http://quotes.morningstar.com/chart/fun ... 22%3A36%7D

In the next year or so the Fed is likely going to stop raising the federal funds rate and the short index is going to come out ahead again even in the short run.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Is it time to dump high yield savings for prime money market?

Post by pokebowl » Tue Mar 27, 2018 3:22 am

nisiprius wrote:
Wed Mar 21, 2018 7:56 am


And, yes, color me xenophobic but it makes me just a bit nervous to see the extent to which Vanguard (and other?) money market mutual funds are investing overseas. Prime Money Market is currently showing 43% "Yankee/foreign." I have a decent amount of trust in Vanguard's prudence, but 43% international is one thing in stocks where you are expecting a lot of risk, and something else in a money market mutual fund where you are expecting something close to zero risk. Is the Nederlandse Waterschapsbank NV OK? Probably, hey, the Dutch are, you know, Santa Claus, wooden shoes, big mercantile power in the age of sail, tulip mania... probably fine. Bank of Nova Scotia? Canada is practically the same as the US and, great smoked salmon. Sumitomo Mitsui Banking Corp, New York Branch? Well if the branch is in New York... I mean to say... it's probably all just fine but how the heck would I know?
This is actually good intel, thanks for bringing this up. I haven't looked too deeply at money markets as outside of sweep accounts I rarely ever interacted with one. I've begun looking into some account offerings and this would be a concern for me as well. Vanguard has been on an edict lately for forced globalization of their product offerings. Equities globally diversified are one thing, but with cash accounts that opens up a potential can of complication especially come tax time. I'd probably avoid any MM account doing this as I can chase yield with stocks, with my cash account all I want is to keep up with inflation and ensure principle is there when needed.

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Re: Is it time to dump high yield savings for prime money market?

Post by Dandy » Wed Mar 28, 2018 8:00 am

I would consider some of my savings type fixed income to be in Prime but don't like the potential limitations that could be implemented in a financial crisis. The yield would have to be significantly higher than Federal Money Market or the yields available from online bank's savings/money market deposit accounts/short term CDs or Treasury Bills.

The other thing to consider is the firm with a really good rate today will surely be topped by some other firm shortly especially in a rising rate environment. This is especially true with bank products which don't have the usual market pressures - i.e. they often respond to very local conditions, promotional rates etc. You can spend a lot of time chasing rates and getting money in too many firms that the complexity can get out of hand. It can be somewhat profitable if you want to spend your time that way.

I do keep an eye on short term rates since I am somewhat following Dr. Bernstein's idea of keeping 20 years worth of drawdown in "safe" products.

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Re: Is it time to dump high yield savings for prime money market?

Post by dollarsaver » Wed Mar 28, 2018 8:01 am

aj76er wrote:
Wed Mar 21, 2018 11:00 am
Not as convenient, but I'm thinking of rolling my Ally No-Penalty CDs into 3mo. T-bills.
Auction is next week, I think.
+1

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Re: Is it time to dump high yield savings for prime money market?

Post by random_walker_77 » Wed Mar 28, 2018 9:02 am

BogleMelon wrote:
Wed Mar 21, 2018 7:22 am
bhsince87 wrote:
Tue Mar 20, 2018 10:39 pm
BogleMelon wrote:
Tue Mar 20, 2018 11:04 am
In my case I am not sure if 0.16% difference worth the hassle (My savings is earning 1.45% at Ally currently). To make things worse, this 0.16% is taxable so it is only 0.13% ($13 more per year for every $10K also not FDIC) :D
Your savings account is taxable too.
I know, yet still any nominal interest rate variance is not exactly what you get due to taxes on the extra rate too.
Hypothetical example:
- $100 in a 10% APY account is $110 after 1 year before taxes, and is $93.50 after taxes assuming 15% tax margin
- $100 in a 15% APY account is $115 after 1 year before taxes, and is $97.75 after taxes assuming 15% tax margin

The difference between the 10% APY and the 15% APY should be 5% (or $5) in your pocket because they are both taxed, right? Wrong! The difference between the actual earnings after taxes in both cases is $97.75-$93.50=$4.25 ($4.25/$100=4.25%) only

In other words, it is 5%-(5%*15%)=4.25%
A nitpick on the math in your example here. If I had the option to put $100 in an account paying 10%, which gave me $110 before taxes, but I'd end up with less than $100 after taxes, then I think I'd rather just put it under the mattress... (i.e. apply the tax rate to just the interest, not the principal)

Your point stands that the difference between accounts, pre-tax, is going to be smaller, after-tax. But the same can be said for just about all (taxable) income. Salaries, investment opportunities, etc. Most people just think entirely in pre-tax dollars for income, and entirely in after-tax dollars for spending.

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Re: Is it time to dump high yield savings for prime money market?

Post by random_walker_77 » Wed Mar 28, 2018 9:07 am

I'm glad to see the money markets come back to life, but keep things in perspective: it still loses to inflation after taxes. So keep what you believe you need to in these short-term liquid options, but it's not going to make much difference in the grand scheme of things, especially with so little difference between them. Might as well go for safety, and count the minor absolute loss as the cost of insurance. Or not.

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Re: Is it time to dump high yield savings for prime money market?

Post by BogleMelon » Wed Mar 28, 2018 9:12 am

random_walker_77 wrote:
Wed Mar 28, 2018 9:02 am
BogleMelon wrote:
Wed Mar 21, 2018 7:22 am
bhsince87 wrote:
Tue Mar 20, 2018 10:39 pm
BogleMelon wrote:
Tue Mar 20, 2018 11:04 am
In my case I am not sure if 0.16% difference worth the hassle (My savings is earning 1.45% at Ally currently). To make things worse, this 0.16% is taxable so it is only 0.13% ($13 more per year for every $10K also not FDIC) :D
Your savings account is taxable too.
I know, yet still any nominal interest rate variance is not exactly what you get due to taxes on the extra rate too.
Hypothetical example:
- $100 in a 10% APY account is $110 after 1 year before taxes, and is $93.50 after taxes assuming 15% tax margin
- $100 in a 15% APY account is $115 after 1 year before taxes, and is $97.75 after taxes assuming 15% tax margin

The difference between the 10% APY and the 15% APY should be 5% (or $5) in your pocket because they are both taxed, right? Wrong! The difference between the actual earnings after taxes in both cases is $97.75-$93.50=$4.25 ($4.25/$100=4.25%) only

In other words, it is 5%-(5%*15%)=4.25%
A nitpick on the math in your example here. If I had the option to put $100 in an account paying 10%, which gave me $110 before taxes, but I'd end up with less than $100 after taxes, then I think I'd rather just put it under the mattress... (i.e. apply the tax rate to just the interest, not the principal)
Oh! you are right! I fixed it..
random_walker_77 wrote:
Wed Mar 28, 2018 9:02 am
Your point stands that the difference between accounts, pre-tax, is going to be smaller, after-tax. But the same can be said for just about all (taxable) income. Salaries, investment opportunities, etc. Most people just think entirely in pre-tax dollars for income, and entirely in after-tax dollars for spending.
When I had a new offer from another employer, though the before tax gross income was 46% higher, I compared the after tax (net income) to see how much per pay check I would really getting more.

People fall in this trap (comparing before tax), and then when switch to a newer job with a slight increase in gross income, they usually get shocked when seeing that their paycheck didn't reflect what they thought. For me, to be able to answer any question that starts with "does it worth.." I have to include all factors in the decision making..
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

kappy
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Re: Is it time to dump high yield savings for prime money market?

Post by kappy » Wed Mar 28, 2018 10:21 am

Quick question about Prime MM... does interest accrue daily? I know it pays out monthly but is it accruing daily?

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randomizer
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Re: Is it time to dump high yield savings for prime money market?

Post by randomizer » Wed Mar 28, 2018 10:23 am

Not worth it for me. I don’t have enough cash for it to make more than a few bucks difference.

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Re: Is it time to dump high yield savings for prime money market?

Post by BolderBoy » Wed Mar 28, 2018 1:15 pm

BogleMelon wrote:
Tue Mar 20, 2018 11:22 am
- Getting my spouse to know and to remember where our money is, and never forget that, in case I am not around.
Easily solved. Get a 3-ring notebook, entitle it "Family Financial Album" along the spine and keep one page printout from each of your accounts in the notebook. You can even be sloppy and never remove defunct account pages. When you open a new account, print off the info page from the account and into the notebook it goes.

All your financial stuff in one place. Put the notebook in your desk at home. When you croak, someone is going to go through your desk early on.

(then gradually start adding one page each of other important documents to the notebook, Will, POAs, Letter of Instruction, Living Will, Healthcare POA, etc). Even if they are out-of-date they are a clue that such exists somewhere.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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