Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

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billted
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Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by billted » Wed May 09, 2018 11:56 am

Curious as to where I should park my emergency fund - currently around $100K. I use USAA at the moment but have been researching the high-yield online banking savings accounts like Ally (pays 1.5%), Goldman Sachs (Marchs @ 1.6%) etc...

Is there a good reason to pick one over the other?

Thanks,
BillTed

Beach
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by Beach » Wed May 09, 2018 2:41 pm

I have Ally currently and its been great. Having to pay taxes on the earned income this past tax season was not so great. I too have been wondering about the VMSXX account and been thinking about switching to it.

SelfEmployed123
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by SelfEmployed123 » Wed May 09, 2018 2:58 pm

I suggest you look into opening a brokerage account at Vanguard. You can invest in Vanguard Prime Money Market (VMMXX). Current SEC yield is 1.84, which is expected to rise if the Feds continue raising interest rates. Money market funds are more responsive to raise rates with the fed, whereas high yield savings account will have some lag.

mega317
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by mega317 » Wed May 09, 2018 3:34 pm

I would like to pull the Boglehead special and not answer the question you asked.

That is a large emergency fund. How many moths of expenses is that? How much do you have in taxable accounts? What is your tax bracket?

You may not need an emergency fund, or you may be someone for whom a municipal money market would make a lot of sense.

Riley15
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by Riley15 » Wed May 09, 2018 9:01 pm

SelfEmployed123 wrote:
Wed May 09, 2018 2:58 pm
I suggest you look into opening a brokerage account at Vanguard. You can invest in Vanguard Prime Money Market (VMMXX). Current SEC yield is 1.84, which is expected to rise if the Feds continue raising interest rates. Money market funds are more responsive to raise rates with the fed, whereas high yield savings account will have some lag.
I am always cautious of the Prime Money Market Fund as replacement for FDIC insured bank accounts. It's comparing apples to oranges. Money market funds do not have FDIC insurance that's guaranteed by the federal government.

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sperry8
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by sperry8 » Wed May 09, 2018 9:11 pm

billted wrote:
Wed May 09, 2018 11:56 am
Curious as to where I should park my emergency fund - currently around $100K. I use USAA at the moment but have been researching the high-yield online banking savings accounts like Ally (pays 1.5%), Goldman Sachs (Marchs @ 1.6%) etc...

Is there a good reason to pick one over the other?

Thanks,
BillTed
Why not park it in the highest payers? At the moment that is Virtual Bank at 2.01% APY or Popular Direct at 2% APY.

If you want to stay Vanguard then go VG Muni Money Market (VMSXX) if you're in the 24%+ bracket or Prime Money Market if you aren't. Yes, these MMs aren't FDIC insured so I'm all for getting more with the two Internet banks which are. That said, I believe the chances of losing money in Vanguard MMs is nil. You may however have a delay in accessing your money in the worst case scenario for a short time.
Humbling BH contest results: 2017: #516 of 647 | 2016: #121 of 610 | 2015: #18 of 552 | 2014: #225 of 503 | 2013: #383 of 433 | 2012: #366 of 410 | 2011: #113 of 369 | 2010: #53 of 282

guyesmith
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by guyesmith » Wed May 09, 2018 9:21 pm

I use a state Municipal Money market.

MnD
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by MnD » Wed May 09, 2018 11:16 pm

I opened a brokerage account at Schwab and put mine in their muni bond money market.
It comes linked with great checking account on request.
Closed the brick and mortar savings and checking accounts and online "high yield" savings account.
Reduced number of institutions with our finances from 5 to 3. :beer

billted
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by billted » Thu May 10, 2018 12:37 pm

Thank you for all the input. To clarify slightly: in addition to the emergency fund of 6 months of expenses, I also have funds set aside for taxes from income made on a 1099. Figured as this number has increased over the years I might as well find a place to put it rather than where it currently lives in a USAA checking account that makes, for all intents and purposes, 0% interest.

I started to look into the higher-yield online savings accounts and Ally seemed to be the winner based upon its customer service, web interface, fast ACH transfers and history. Then I saw their are other players that pay a higher percentage (2% vs the 1.5% of Ally). Then I wondered if it was worth chasing an extra 0.5% interest rate with some online bank that has a reputation less stellar than Ally. Then I learned about Vanguard VMSXX but was concerned about FDIC!

It starts out so simple and quickly snowballs to a point where I don't know what to do! At this point - and here is where your opinions and expertise are most appreciated - I think I'll go with the known quantity that has FDIC insurance like Ally or Marcus (Goldman Sachs). I certainly like the idea of VMSXX since I have retirement accounts with Vanguard but I'm concerned as to what risk the monies would be.

BillTed

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welderwannabe
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by welderwannabe » Sun May 13, 2018 7:57 pm

I keep my efund in VMSXX. I sleep like a baby doing so.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

BlackcatCA
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by BlackcatCA » Sun May 13, 2018 8:23 pm

OP: you can put e-fund in different tiers, especially with the large amount you have. Unless you only want to deal with 1 bank.

I use Ally as first tier, Vanguard MM as second tier (also tax exempt), and I- bond as third tier. The only difference between Ally and Vanguard for me is that Ally money can be accesssed using a debit card, so cash on hand is on the same day. That's the only difference, not so much the FDIC insurance difference in the current economic climate.

radiowave
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by radiowave » Sun May 13, 2018 9:00 pm

OP Ally just increased their savings rate up to 1.60% https://www.ally.com/bank/view-rates/? ... AV2_RATES .
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

billted
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by billted » Sun May 13, 2018 10:00 pm

Thanks for the replies and good to know about the increase in Ally. Welderwannabe, your reply is terrific - that's what I want to hear! But now I need to know why so that I too can sleep like a baby!!

Again, thanks for all the replies and shared experiences...what a great forum.

BillTed

EnjoyIt
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by EnjoyIt » Sun May 13, 2018 11:01 pm

billted wrote:
Wed May 09, 2018 11:56 am
Curious as to where I should park my emergency fund - currently around $100K. I use USAA at the moment but have been researching the high-yield online banking savings accounts like Ally (pays 1.5%), Goldman Sachs (Marchs @ 1.6%) etc...

Is there a good reason to pick one over the other?

Thanks,
BillTed
I just did this. I moved my emergency fund and home remodel fund to Vanguard Municipal Money Market Fund (VMSXX) from Ally 1.6% Online Savings. At 33% tax bracket my after tax returns went from $1600 to $2100 for the year. Not a ton of money, but sure is better than nothing for 30 minutes worth of work.

kaeltor
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by kaeltor » Mon May 14, 2018 1:25 pm

welderwannabe wrote:
Sun May 13, 2018 7:57 pm
I keep my efund in VMSXX. I sleep like a baby doing so.
How much are you making on that?


billted wrote:
Wed May 09, 2018 11:56 am


I just did this. I moved my emergency fund and home remodel fund to Vanguard Municipal Money Market Fund (VMSXX) from Ally 1.6% Online Savings. At 33% tax bracket my after tax returns went from $1600 to $2100 for the year. Not a ton of money, but sure is better than nothing for 30 minutes worth of work.
Edit: Why is VMSXX tax exempt?

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welderwannabe
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Re: Newb: Money Market Fund (VMSXX) vs high yield savings online banking for E-fund?

Post by welderwannabe » Mon May 14, 2018 8:02 pm

billted wrote:
Sun May 13, 2018 10:00 pm
Thanks for the replies and good to know about the increase in Ally. Welderwannabe, your reply is terrific - that's what I want to hear! But now I need to know why so that I too can sleep like a baby!!
The municipal money market is not 'risk free' but it is pretty close. Municipal debt has a long and relatively positive history. Also the debt that the money market is invested in is very short term.

FDIC insurance is limited to $250K (although there are ways to increase that with various account registrations). At my tax rate the municipal money market is equivalent to 2.36% at the bank right now...so the tax equivalant yield is far better for me than other choices.

There are things to worry about in this life, and things not to worry about. The safety of the vanguard money markets are on the 'not to worry about' list for me.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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