FDIC vs VMMXX

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etsy123
Posts: 11
Joined: Tue Aug 04, 2015 1:03 pm

FDIC vs VMMXX

Post by etsy123 » Fri Sep 22, 2017 1:47 am

FDIC vs VMMXX

If I deposit money into my FDIC insured bank, so long as I stay below $250,000 I have no worry. The bank is a single point of failure but the FDIC insurance protects my money. Therefore I am 100% safe.

If I "deposit" money into Vanguard Prime Money Market (or similar) I have no worry. There is no single point of failure because the fund is broadly diversified. The instruments it invests in are very low risk. The probability of breaking the buck is very, very low. I also can go over 250,000 in "deposits" without worry. Therefore I am 99.99% safe.

Thus if all I care about is "money being safe" and "rate of return" I can freely compare the two. I can look at these numbers and pick the "highest":

Bank rate - doesn't take into effect compounding
Bank APY - does take into effect compounding
Money market mutual fund SEC yield or 7-day yield - Doesn't take into effect compounding but does take into effect mutual fund fees

Agree?

Daryl
Posts: 339
Joined: Thu May 22, 2008 9:34 am
Location: Malvern, PA (I like to sleep near my money!)

Re: FDIC vs VMMXX

Post by Daryl » Fri Sep 22, 2017 5:49 am

In most cases, I treat these two the same and pick the highest yielding of the two. Right now I think Ally online savings account is a little higher than the Vanguard Money Market. Most people probably don't have to worry about FDIC limits with their checking/savings accounts, unless you also have CDs with the same bank.

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