Money market fund as ~checking account?

[psteinx]

Now that short term interest rates are notably above 0, I'm thinking about better approaches for accounts used to pay bills, etc.

In a different thread, someone pointed to
https://www.depositaccounts.com/

Which shows current rates on various types of accounts through banks.

Notably, the best online checking accounts still tend to be below the rates money-market funds.

Moreover, I suspect (but don't know) that using a top-paying online bank today, things might drift in a worse direction next month/year, as teaser rates disappear or whatever.

How realistic is it to use money market funds (at Vanguard, Fidelity, or whatever) as a pseudo-checking account?

Can one do automatic billpaying and deposits of paychecks and the like into such money market funds, and/or are there other major drawbacks?

If an MM fund is not attractive for these or other reasons, do folks here have much experience with the relatively high-paying checking accounts from online banks, and if so, what do they think? Do the rates stay consistently high (in-line with T-Bill rates, less some %) generally, or do they fluctuate a lot? Are there other major drawbacks vs. a more standard local bank with 0% or 0.02% checking or whatever?

[KlangFool]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

[Scorpion Stare]

The Fidelity: one stop shop wiki page and forum thread have some info on doing this.

[Alto Astral]

Yes, I keep all my cash in Fidelity’s fund FZDXX in their Cash Management Account. All our credit card bills, utility bills etc are paid through it. Even got a debit card (they refund fees). Have our payroll deposits going here as well. I also use this account to buy t-bills. See the one-stop link in the post above.

[Marseille07]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

This is pretty much my approach as well. 3 months cover the short-term needs; and if an emergency occurs I can liquidate MMF no problem.

[KlangFool]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

This is pretty much my approach as well. 3 months cover the short-term needs; and if an emergency occurs I can liquidate MMF no problem.

Another reason for this is I am not comfortable putting all my emergency fund into one account.

KlangFool

[Marseille07]

Another reason for this is I am not comfortable putting all my emergency fund into one account.

KlangFool

I'm not too concerned about that since my 3-months is nowhere near the FDIC limit. You do want to pick a very safe MMF as one MMF has broken the buck before.

[evelynmanley]

This thread might help you make your decision:

viewtopic.php?t=387886

[nisiprius]

Another reason for this is I am not comfortable putting all my emergency fund into one account.

KlangFool

I'm not too concerned about that since my 3-months is nowhere near the FDIC limit. You do want to pick a very safe MMF as some MMFs have broken the buck.

Only one in history (so far), as far as I know: the Reserve Primary Money Market Fund in 2008. Which was very bad for shareholders, who had to wait many months to get any of their money. It took something like two and a half years but they finally got back something like $0.99 on the dollar. That doesn't affect the wisdom of your remark but let's not overstate the risk.

[Scrooge McDuck]

We have a Fidelity Cash Management Account which we use for "banking" features - checkwriting, bill pay, e-checks, online check deposit, ATM/debit card. The "Fidelity One Stop Shop" thread was already mentioned and has tons of info.

We also have a Vanguard money market fund which I use for larger checks. Vanguard asks that you not write checks less than $250 from these funds, although they apparently still honor them if you do.

We still have a traditional bank account for historical reasons but we essentially never need it.

[Marseille07]

Only one in history (so far), as far as I know: the Reserve Primary Money Market Fund in 2008. Which was very bad for shareholders, who had to wait many months to get any of their money. It took something like two and a half years but they finally got back something like $0.99 on the dollar. That doesn't affect the wisdom of your remark but let's not overstate the risk.

Thanks for correcting. I'll say one MMF has broken the buck going forward. I didn't mean any FUD here though.

[sandan]

Another reason for this is I am not comfortable putting all my emergency fund into one account.

KlangFool

I'm not too concerned about that since my 3-months is nowhere near the FDIC limit. You do want to pick a very safe MMF as some MMFs have broken the buck.

Only one in history (so far), as far as I know: the Reserve Primary Money Market Fund in 2008. Which was very bad for shareholders, who had to wait many months to get any of their money. It took something like two and a half years but they finally got back something like $0.99 on the dollar. That doesn't affect the wisdom of your remark but let's not overstate the risk.

Sure, but your historical fact provides a distorted perspective post 2008. Many MMFs no longer carry an implicit guarantee. Not exactly an apples-to-apples comparison.

[KlangFool]

Another reason for this is I am not comfortable putting all my emergency fund into one account.

KlangFool

I'm not too concerned about that since my 3-months is nowhere near the FDIC limit. You do want to pick a very safe MMF as one MMF has broken the buck before.

That is not the problem that I worried about. The issue is if the ACH / bill paying system broke and my money is withdrawn by someone.

KlangFool

[JoMoney]

Now that short term interest rates are notably above 0, I'm thinking about better approaches for accounts used to pay bills, etc.

In a different thread, someone pointed to
https://www.depositaccounts.com/

Which shows current rates on various types of accounts through banks.

Notably, the best online checking accounts still tend to be below the rates money-market funds.

Moreover, I suspect (but don't know) that using a top-paying online bank today, things might drift in a worse direction next month/year, as teaser rates disappear or whatever.

How realistic is it to use money market funds (at Vanguard, Fidelity, or whatever) as a pseudo-checking account?

Can one do automatic billpaying and deposits of paychecks and the like into such money market funds, and/or are there other major drawbacks?

If an MM fund is not attractive for these or other reasons, do folks here have much experience with the relatively high-paying checking accounts from online banks, and if so, what do they think? Do the rates stay consistently high (in-line with T-Bill rates, less some %) generally, or do they fluctuate a lot? Are there other major drawbacks vs. a more standard local bank with 0% or 0.02% checking or whatever?

Vanguard no longer offers the "VanguardAdvantage Account" which previously allowed for bank like features (ATM card, bill pay, checkwriting). It's been awhile since I've used a Vanguard account, but I don't believe they offer the ability to pull money via ACH from their accounts. You can direct deposit via ACH, but not link it as a payment account for your credit card to pull from or such.

Fidelity brokerage accounts come with a full ACH access to push/pull available cash from. You can enable check-writing, BillPay, as well as a ATM/debit card. If you choose the "CMA" brokerage account, the core settlement fund is a FDIC bank sweep, but you can also buy other money market funds in the account, and the cash in those MMF will automatically be pulled from if the FDIC bank sweep is at $0, additionally the CMA account will refund any ATM fees incurred. The regular brokerage account with ATM/Debit card may also refund ATM fees, but the amount is limited, and only if you have a higher-tier account status and have the account opened and coded properly to refund ATM fees.

I currently use a Fidelity CMA account as my primary banking account for deposits and bill pay. The biggest drawback for me, is sometime during the COVID panic they stopped offering cashiers checks. They indicated they may return sometime in the future, but for now they won't issue a cashiers check if you need one. It doesn't come up often, but every once in awhile I've had need of one.

[JoMoney]

Another reason for this is I am not comfortable putting all my emergency fund into one account.

KlangFool

I'm not too concerned about that since my 3-months is nowhere near the FDIC limit. You do want to pick a very safe MMF as one MMF has broken the buck before.

That is not the problem that I worried about. The issue is if the ACH / bill paying system broke and my money is withdrawn by someone.

KlangFool

For a consumer account, "Reg E" would provide protections ensuring you were made whole (as long as you report it promptly)... having fewer accounts to keep track of may make it easier to see an issue and report quickly. It's still possible you could run into other issues while the money may be pending some provisional "investigation", which could be a problem. FWIW, I have credit cards and keep a small amount of physical cash around to avoid a variety of possible issues if electronic networks fail.

[PassiveIncomeBy40]

I use High Yield savings accounts from Discover and American Express (APY: 3.3%). Each has a 6 transactions limit (withdrawals) per month. I make a direct deposit to one of them (some employers allow you to split paycheck to more than one). I then transfer a small amount from High Yield savings to my "regular" checking to pay bills (I usually only keep $500 in my regular checking). If you only have a few bills to pay, you might pull it off using one or two of the accounts directly.

If you want higher interest rates, how about buying 30 days' T-bills directly from US Treasury? 30-day t-bill will yield you 4.6% (!) with no fees as in the Money Market Fund. You can stack them as a ladder which is something I started to do now.

Example: let's say you want to keep $10k very liquid. You could buy $1k T-bills each (over some time increments) so they will mature over time if you need them to (or you auto-roll them) to reinvest. That's roughly what a MMF will do (although at a much higher scale and with daily liquidity to you if you need it from the overall pool of funds). Fees will probably run you 0.1%-.3% (10-30bps) depending on the MMF provider.

In addition, bonds (like treasuries) issued by federal governments may be exempt from state and local taxes.

[techbud]

Related question: I've used Fidelity, which treats their money market funds as cash (Eg if you sell it's immediately available), and I've used TDAmeritrade, which treats money market funds like mutual funds eg buy/sell orders take place after the market closes, so you don't have immediate availability to the funds for withdrawal purposes.

Are there other brokerages that follow the Fidelity model of treating money market funds like cash?

[exodusNH]

Related question: I've used Fidelity, which treats their money market funds as cash (Eg if you sell it's immediately available), and I've used TDAmeritrade, which treats money market funds like mutual funds eg buy/sell orders take place after the market closes, so you don't have immediate availability to the funds for withdrawal purposes.

Are there other brokerages that follow the Fidelity model of treating money market funds like cash?

With Vanguard, you can transfer funds out via ACH without an explicit sell.

[muffins14]

I keep all my "cash" used for a "checking" account (or billpay, ACH, wire transfers, debit card etc) in money markets at fidelity -- either their muni or treasury-only ones. They are auto-liquidated to pay for things, so it works for me.

Yield on FDLXX is state-tax free, 3.99% pre-tax as of 1/31

[greg24]

We have a local checking account, and a Vanguard MM account, and can transfer the funds electronically between the two. That liquidity between the accounts lets me entertain myself with interest-chasing. We write our larger checks against the VMM and it's minimum $250 check size, while the smaller bills are paid from local checking.

[Charles Joseph]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

Klang,

Do you keep this in tax deferred or taxable?

[KlangFool]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

Klang,

Do you keep this in tax deferred or taxable?

Taxable. It would be pointless to be in the tax deferred.

KlangFool

[Charles Joseph]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

Klang,

Do you keep this in tax deferred or taxable?

Taxable. It would be pointless to be in the tax deferred.

You're right. It would be pointless. Unless you wanted to pay less taxes.

I'm not going down KlangFool Avenue tonight, so go ahead and just say what you need to say and I'll leave it at that. But taxes on a 4.5% MMF are meaningful. If I move my MMF to tax deferred, selling stocks there to buy it, and sell my MMF to buy more stocks in taxable, I can then do the reverse when I need cash. But you know that already.

[KlangFool]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

Klang,

Do you keep this in tax deferred or taxable?

Taxable. It would be pointless to be in the tax deferred.

You're right. It would be pointless. Unless you wanted to pay less taxes.

I'm not going down KlangFool Avenue tonight, so go ahead and just say what you need to say and I'll leave it at that. But taxes on a 4.5% MMF are meaningful. If I move my MMF to tax deferred, selling stocks there to buy it, and sell my MMF to buy more stocks in taxable, I can then do the reverse when I need cash. But you know that already.

Charles Joseph,

"It depends".

A) If selling the stock and generate enough capital gain will stop you from getting the ACA subsidy, how much will that costs you?

B) Spending cash generate zero taxable income. It means more room for Roth conversion too.

Please calculate that carefully for your own situation. I had been unemployed for more than 1 year a few times. So, I had practices on how to qualify for the ACA subsidy. If you have never do this before, you may want to learn this if you retire before medicare eligibility.

KlangFool

[marcopolo]

OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

Klang,

Do you keep this in tax deferred or taxable?

Taxable. It would be pointless to be in the tax deferred.

You're right. It would be pointless. Unless you wanted to pay less taxes.

I'm not going down KlangFool Avenue tonight, so go ahead and just say what you need to say and I'll leave it at that. But taxes on a 4.5% MMF are meaningful. If I move my MMF to tax deferred, selling stocks there to buy it, and sell my MMF to buy more stocks in taxable, I can then do the reverse when I need cash. But you know that already.

Charles Joseph,

"It depends".

A) If selling the stock and generate enough capital gain will stop you from getting the ACA subsidy, how much will that costs you?

B) Spending cash generate zero taxable income. It means more room for Roth conversion too.

Please calculate that carefully for your own situation. I had been unemployed for more than 1 year a few times. So, I had practices on how to qualify for the ACA subsidy. If you have never do this before, you may want to learn this if you retire before medicare eligibility.

KlangFool

If you are trying to get ACA tax credits, you are presumably in withdrawal mode. Where is the 3 months of cash coming from as you spend? Whatever that is can just as easily be used to fund the expenses directly. The 3 months of cash just acts as FIFO buffer, and does little to lower "income" for ACA purposes. Being unemployed for a period is nothing like managing ACA income for years of early retirement.

You can't have a buffer and spend it, too. But, you are an engineer, I am sure you know this.

[KlangFool]

If you are trying to get ACA tax credits, you are presumably in withdrawal mode. Where is the 3 months of cash coming from as you spend? Whatever that is can just as easily be used to fund the expenses directly. The 3 months of cash just acts as FIFO buffer, and does little to lower "income" for ACA purposes. Being unemployed for a period is nothing like managing ACA income for years of early retirement.

You can't have a buffer and spend it, too. But, you are an engineer, I am sure you know this.

marcopolo,

1) Instead of 3 months buffer, imagine a 24 months buffer.

"You can't have a buffer and spend it, too. But, you are an engineer, I am sure you know this."

2) I am a network engineer. The goal of the buffer is to smooth out the output in the case of uncertain input. The buffer is meant to be used.

"The 3 months of cash just acts as FIFO buffer, and does little to lower "income" for ACA purposes."

3) Not in your case with your level of annual expense. What is your annual expense?

"Being unemployed for a period is nothing like managing ACA income for years of early retirement. "

4) "It depends". At your level of annual expense, it does not help. But, that is not necessary true for me.

KlangFool