Money market funds - under par interest rates

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tmcc
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Money market funds - under par interest rates

Post by tmcc » Sun Apr 29, 2018 5:49 pm

I have several short term cashflow needs that will be happening soon. i would like to at least keep the interest rolling if possible. I have this money sitting in a schwab money fund SNSXX. I am confused because the yield is only 1.35% per schwab. online savings accounts are now touching 2.0%. why are these money market funds lagging so badly?

one way to look at it is that the difference is immaterial on the principal amount which is $30k. the other way to look at it is that schwab underperforms by 30%+ on rate

drk
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Re: Money market funds - under par interest rates

Post by drk » Sun Apr 29, 2018 5:55 pm

tmcc wrote:
Sun Apr 29, 2018 5:49 pm
I have several short term cashflow needs that will be happening soon. i would like to at least keep the interest rolling if possible. I have this money sitting in a schwab money fund SNSXX. I am confused because the yield is only 1.35% per schwab. online savings accounts are now touching 2.0%. why are these money market funds lagging so badly?

one way to look at it is that the difference is immaterial on the principal amount which is $30k. the other way to look at it is that schwab underperforms by 30%+ on rate
Is there a reason why you're going with the Treasury fund rather than Prime or Municipal? They both have higher yields. What's your marginal tax rate?

Edit: Anyway, you're definitely not wrong that Schwab's money funds are yielding less than high-yield savings accounts or Vanguard's equivalent funds. In part, this is due to their higher ERs, which directly reduce the SEC yield.

BogleMelon
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Re: Money market funds - under par interest rates

Post by BogleMelon » Sun Apr 29, 2018 6:13 pm

Just moved some money from Ally to Vanguard Prime Money Fund (VMMXX). Low ER (0.16%) and it yields currently 1.81%.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

drk
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Re: Money market funds - under par interest rates

Post by drk » Sun Apr 29, 2018 6:18 pm

BogleMelon wrote:
Sun Apr 29, 2018 6:13 pm
Just moved some money from Ally to Vanguard Prime Money Fund (VMMXX). Low ER (0.16%) and it yields currently 1.81%.
That's exactly what does in Schwab's funds. Investor shares of its Prime fund yields 1.67% after a 0.35% net ER, while Ultra shares yield 1.82% after a 0.19% ER.

Nate79
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Re: Money market funds - under par interest rates

Post by Nate79 » Sun Apr 29, 2018 6:21 pm

SWVXX is 1.67% which is right in line with most online savings accounts. Savings accounts have more restrictions (# of allowed withdrawals) than money market fund.

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Clever_Username
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Re: Money market funds - under par interest rates

Post by Clever_Username » Sun Apr 29, 2018 6:26 pm

BogleMelon wrote:
Sun Apr 29, 2018 6:13 pm
Just moved some money from Ally to Vanguard Prime Money Fund (VMMXX). Low ER (0.16%) and it yields currently 1.81%.
I think that's what it yielded last month. Or, rather, it's the SEC yield for last month. Is there a way to find out what the current estimated yield for the coming month is? Maybe I'm reading the page wrong.

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

BogleMelon
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Re: Money market funds - under par interest rates

Post by BogleMelon » Sun Apr 29, 2018 6:30 pm

Clever_Username wrote:
Sun Apr 29, 2018 6:26 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:13 pm
Just moved some money from Ally to Vanguard Prime Money Fund (VMMXX). Low ER (0.16%) and it yields currently 1.81%.
I think that's what it yielded last month. Or, rather, it's the SEC yield for last month. Is there a way to find out what the current estimated yield for the coming month is? Maybe I'm reading the page wrong.

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
I believe the SEC yield is updated every 7 days not every month. Not sure how they do it when the distribution is monthly based though!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

BogleMelon
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Re: Money market funds - under par interest rates

Post by BogleMelon » Sun Apr 29, 2018 6:32 pm

Clever_Username wrote:
Sun Apr 29, 2018 6:26 pm

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
Also I had my eyes on this fund for couple of months now, it has been more than Ally for a while, it is partially related to the T-bills auctions I guess. Since in the current environment the rates are going up, this fund is basically reflecting the interest rate market, unlike saving accounts where you get what the bank decides.
Last edited by BogleMelon on Sun Apr 29, 2018 6:36 pm, edited 2 times in total.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

drk
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Re: Money market funds - under par interest rates

Post by drk » Sun Apr 29, 2018 6:33 pm

BogleMelon wrote:
Sun Apr 29, 2018 6:30 pm
Clever_Username wrote:
Sun Apr 29, 2018 6:26 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:13 pm
Just moved some money from Ally to Vanguard Prime Money Fund (VMMXX). Low ER (0.16%) and it yields currently 1.81%.
I think that's what it yielded last month. Or, rather, it's the SEC yield for last month. Is there a way to find out what the current estimated yield for the coming month is? Maybe I'm reading the page wrong.

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
I believe the SEC yield is updated every 7 days not every month. Not sure how they do it when the distribution is monthly based though!
They accumulate daily, no?

BogleMelon
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Re: Money market funds - under par interest rates

Post by BogleMelon » Sun Apr 29, 2018 6:35 pm

drk wrote:
Sun Apr 29, 2018 6:33 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:30 pm
Clever_Username wrote:
Sun Apr 29, 2018 6:26 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:13 pm
Just moved some money from Ally to Vanguard Prime Money Fund (VMMXX). Low ER (0.16%) and it yields currently 1.81%.
I think that's what it yielded last month. Or, rather, it's the SEC yield for last month. Is there a way to find out what the current estimated yield for the coming month is? Maybe I'm reading the page wrong.

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
I believe the SEC yield is updated every 7 days not every month. Not sure how they do it when the distribution is monthly based though!
They accumulate daily, no?
Here is how I understand it (and the experts here can correct me if I am wrong). This fund doesn't pay interest the same way banks do. Thus, we can not say that the interest yield daily or monthly. The way you make money here is that this fund invests in CD's and treasuries (short term), when the CD's and the bills mature they pay the fund back, thus the fund distributes these gains/dividends to the holder each month accordingly.
"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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Clever_Username
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Re: Money market funds - under par interest rates

Post by Clever_Username » Sun Apr 29, 2018 6:44 pm

BogleMelon wrote:
Sun Apr 29, 2018 6:32 pm
Clever_Username wrote:
Sun Apr 29, 2018 6:26 pm

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
Also I had my eyes on this fund for couple of months now, it has been more than Ally for a while, it is partially related to the T-bills auctions I guess. Since in the current environment the rates are going up, this fund is basically reflecting the interest rate market, unlike saving accounts where you get what the bank decides.
Very good points. Thanks!
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

drk
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Re: Money market funds - under par interest rates

Post by drk » Sun Apr 29, 2018 8:28 pm

BogleMelon wrote:
Sun Apr 29, 2018 6:35 pm
drk wrote:
Sun Apr 29, 2018 6:33 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:30 pm
Clever_Username wrote:
Sun Apr 29, 2018 6:26 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:13 pm
Just moved some money from Ally to Vanguard Prime Money Fund (VMMXX). Low ER (0.16%) and it yields currently 1.81%.
I think that's what it yielded last month. Or, rather, it's the SEC yield for last month. Is there a way to find out what the current estimated yield for the coming month is? Maybe I'm reading the page wrong.

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
I believe the SEC yield is updated every 7 days not every month. Not sure how they do it when the distribution is monthly based though!
They accumulate daily, no?
Here is how I understand it (and the experts here can correct me if I am wrong). This fund doesn't pay interest the same way banks do. Thus, we can not say that the interest yield daily or monthly. The way you make money here is that this fund invests in CD's and treasuries (short term), when the CD's and the bills mature they pay the fund back, thus the fund distributes these gains/dividends to the holder each month accordingly.
I think you're correct, but there's one part missing: these funds hold some notes that mature every week. Otherwise, it would have to liquidate investments in order to handle withdrawals, or it would have to hold new cash uninvested for up to a month. I suspect that those continuous maturities are why the yield changes from week to week.

tmcc
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Re: Money market funds - under par interest rates

Post by tmcc » Sun Apr 29, 2018 8:31 pm

So are online savings account banks buying 10 years and offering 2% savings rates and pocketing the 1%? how do i apply to become a bank again? :D

ThrustVectoring
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Re: Money market funds - under par interest rates

Post by ThrustVectoring » Sun Apr 29, 2018 10:59 pm

tmcc wrote:
Sun Apr 29, 2018 8:31 pm
So are online savings account banks buying 10 years and offering 2% savings rates and pocketing the 1%? how do i apply to become a bank again? :D
You first need to understand duration and interest rate risk. If the yield on those 10-years goes up 1% in a year, they lose 10% of their value, and the bank goes bankrupt.

If you're serious about borrowing short and lending long, buy treasury futures. They're approximately equivalent to borrowing at the 3-month treasury bill rate and lending at the 2/5/10 year treasury rate, and offer you enough leverage to lose your entire investment in roughly a day if you so desire.

anoop
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Re: Money market funds - under par interest rates

Post by anoop » Mon Apr 30, 2018 10:33 pm

tmcc wrote:
Sun Apr 29, 2018 8:31 pm
So are online savings account banks buying 10 years and offering 2% savings rates and pocketing the 1%? how do i apply to become a bank again? :D
https://www.offshorecompany.com/banking ... /your-own/

And if it's money you're after, this is how to run the bank once you get it going.
https://www.youtube.com/watch?v=-JBYPcgtnGE
For those who are time-strapped, the slide for how to do this is at 2:05.

NYCwriter
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Re: Money market funds - under par interest rates

Post by NYCwriter » Mon Apr 30, 2018 11:31 pm

drk wrote:
Sun Apr 29, 2018 8:28 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:35 pm
drk wrote:
Sun Apr 29, 2018 6:33 pm
BogleMelon wrote:
Sun Apr 29, 2018 6:30 pm
Clever_Username wrote:
Sun Apr 29, 2018 6:26 pm


I think that's what it yielded last month. Or, rather, it's the SEC yield for last month. Is there a way to find out what the current estimated yield for the coming month is? Maybe I'm reading the page wrong.

Of course, I think "last month's SEC yield" is a pretty good estimator for a money market account.
I believe the SEC yield is updated every 7 days not every month. Not sure how they do it when the distribution is monthly based though!
They accumulate daily, no?
Here is how I understand it (and the experts here can correct me if I am wrong). This fund doesn't pay interest the same way banks do. Thus, we can not say that the interest yield daily or monthly. The way you make money here is that this fund invests in CD's and treasuries (short term), when the CD's and the bills mature they pay the fund back, thus the fund distributes these gains/dividends to the holder each month accordingly.
I think you're correct, but there's one part missing: these funds hold some notes that mature every week. Otherwise, it would have to liquidate investments in order to handle withdrawals, or it would have to hold new cash uninvested for up to a month. I suspect that those continuous maturities are why the yield changes from week to week.
I have a portion in Vanguard Prime that would normally be in bond funds, and a chunk in Cap MM (1.5%) as my 8-mo emergency, protected, ironclad fund. At present, the Prime weekly interest changes have worked in our favor. The fund offers a "stable" share price based mostly on CDs, securities, and Treasuries. I was in a bank today looking for a notary and noticed that home equity credit has jumped to 4+% So yes, banks have to make their money before they pay us. :)

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