Suggestions for cash or cash equivalent positions?

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adamb
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Suggestions for cash or cash equivalent positions?

Post by adamb » Fri Nov 08, 2019 2:45 pm

Hi BHs,

Can anyone suggest best places to park $20-30k "cash" for an emergency fund? My wife and I have been sitting on this much in a Schwab savings account, which earns essentially nothing (0.23%). We could be doing better in other vehicles, but I have no experience with CDs and MMs.

I understand we're only looking at a 1 to 2% upside, but it bothers me to essentially throw 300 to 600 dollars away each year.

For context, we have accounts and thus easy access to vehicles at Schwab, Vanguard, and PenFed.

Thank you.
Last edited by adamb on Fri Nov 08, 2019 2:46 pm, edited 1 time in total.

mervinj7
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Re: Suggestions for cash or cash equivalent positions?

Post by mervinj7 » Fri Nov 08, 2019 2:45 pm

VUSXX

Topic Author
adamb
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Re: Suggestions for cash or cash equivalent positions?

Post by adamb » Fri Nov 08, 2019 2:48 pm

mervinj7 wrote:
Fri Nov 08, 2019 2:45 pm
VUSXX
Thanks, but this carries a minimum investment of $50k. We don't need to hold this much cash.

Edit: I'm in California; maybe VCTXX.
Last edited by adamb on Fri Nov 08, 2019 2:50 pm, edited 1 time in total.

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Re: Suggestions for cash or cash equivalent positions?

Post by Jack FFR1846 » Fri Nov 08, 2019 2:49 pm

Redneck Bank MegaMoney account. 2.25% now. No minimum. $50k max for earning this rate.
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Kevin M
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Re: Suggestions for cash or cash equivalent positions?

Post by Kevin M » Fri Nov 08, 2019 2:52 pm

Vanguard money market funds are safe and have the highest yields relative to MM funds at the other brokers you mention. Depending on your state tax rate, Fed MM could have a higher taxable equivalent yield (TEY) than Prime MM. Prime SEC yield is 1.82%, but all MM yields have been falling as the Fed has lowered the federal fund rate. Treasury MM requires $50K to open, but once open the balance can fall below that. Treasury MM SEC yield is 1.78%, but TEY for me is 2.02%.

Ally no-penalty CD yield is 1.90% APY, with the yield locked in for 11 months, and penalty-free withdrawal of full amount allowed after six days. So higher yield than Prime MM, and yield locked in for 11 months.

You might be able to find a savings account at about 2.4%. Check out DepositAccounts.

Kevin
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mervinj7
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Re: Suggestions for cash or cash equivalent positions?

Post by mervinj7 » Fri Nov 08, 2019 2:53 pm

adamb wrote:
Fri Nov 08, 2019 2:48 pm
mervinj7 wrote:
Fri Nov 08, 2019 2:45 pm
VUSXX
Thanks, but this carries a minimum investment of $50k. We don't need to hold this much cash.

Edit: I'm in California; maybe VCTXX.
You should calculate the TEY of each to be sure based on your CA tax rate. Other ones to consider is VMMXX (fully taxable) and VMFXX (partially state tax exempt). See Kevin M's thread below. For VUSXX (which is most likely the highest tax equivalent yield Vanguard MM for you), $50k is required to open but then you can drop below that.

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PDX_Traveler
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Re: Suggestions for cash or cash equivalent positions?

Post by PDX_Traveler » Fri Nov 08, 2019 2:54 pm

adamb wrote:
Fri Nov 08, 2019 2:48 pm
mervinj7 wrote:
Fri Nov 08, 2019 2:45 pm
VUSXX
Thanks, but this carries a minimum investment of $50k. We don't need to hold this much cash.

Edit: I'm in California; maybe VCTXX.
Why not VMFXX ?
https://investor.vanguard.com/mutual-fu ... file/VMFXX

Workable Goblin
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Re: Suggestions for cash or cash equivalent positions?

Post by Workable Goblin » Fri Nov 08, 2019 2:56 pm

adamb wrote:
Fri Nov 08, 2019 2:45 pm
Hi BHs,

Can anyone suggest best places to park $20-30k "cash" for an emergency fund? My wife and I have been sitting on this much in a Schwab savings account, which earns essentially nothing (0.23%), and I think we could but have no experience doing better in other vehicles, CDs, etc.
It's actually down to 0.18% now :|
adamb wrote:
Fri Nov 08, 2019 2:45 pm
For context, we have accounts and thus easy access to vehicles at Schwab, Vanguard, and PenFed.
You're pretty much all set, then! If you just want a better savings account, there are two good options for you. First, you could buy money markets at Schwab or Vanguard. I'm not a Vanguard member, so I don't know their rates, but Schwab offers up to about 1.6% interest on their money market funds (discounting Ultra shares, which you need a million dollars to buy into, at least as an initial investment). Vanguard, I believe, is a bit better, but again I don't know their rates. PenFed, meanwhile, offers 1.7% interest on their Premium Online savings account. There are a few places you can do a bit better, in the 1.8-1.9% range, but 1.7% is a very solid rate these days.

Either of these will function like a savings account (with the caveat that the money market funds can take a few days to clear after putting in a sell order if you do so at awkward times, e.g. late on a Friday before weekend with a federal holiday Monday...) If you're willing to tie up your e-fund money for a while, then you could look into buying short-term CDs (although this would require opening accounts at other institutions to get the best rates) or holding short-term (4 week) T-Bills directly, perhaps in a ladder so that you could access them in the middle of the month (though this would take some management to ensure they rolled over at maturity if you didn't need the cash--I know Schwab doesn't do that automatically, and I don't think Vanguard does, either). You could perhaps get even better rates this way, although with more work and a bit more risk of having an emergency and not being able to tap the fund immediately.

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Re: Suggestions for cash or cash equivalent positions?

Post by Kevin M » Fri Nov 08, 2019 3:05 pm

adamb wrote:
Fri Nov 08, 2019 2:48 pm
mervinj7 wrote:
Fri Nov 08, 2019 2:45 pm
VUSXX
Thanks, but this carries a minimum investment of $50k. We don't need to hold this much cash.

Edit: I'm in California; maybe VCTXX.
Probably not VCTXX, but tell me your federal and state marginal tax rates and I'll tell you the TEY. At my rates of 27% fed and 8% state, VCTXX TEY is only 1.47% (SEC yield = 0.95%).

The tax-exempt MM fund yields are cyclical, so at some times they may be competitive, but not now.

As a CA resident VMFXX (Fed MM) with a relatively high state income tax rate, probably is next best to VUSXX. In 2018, about 78% of its income was exempt from state tax. For me, compound TEY of VMFXX is 1.90% (SEC yield = 1.72%), so a bit better than Prime MM at compound yield of 1.84%.

Kevin
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Re: Suggestions for cash or cash equivalent positions?

Post by Wiggums » Fri Nov 08, 2019 3:08 pm

Kevin M wrote:
Fri Nov 08, 2019 2:52 pm
Vanguard money market funds are safe and have the highest yields relative to MM funds at the other brokers you mention. Depending on your state tax rate, Fed MM could have a higher taxable equivalent yield (TEY) than Prime MM. Prime SEC yield is 1.82%, but all MM yields have been falling as the Fed has lowered the federal fund rate. Treasury MM requires $50K to open, but once open the balance can fall below that. Treasury MM SEC yield is 1.78%, but TEY for me is 2.02%.

Ally no-penalty CD yield is 1.90% APY, with the yield locked in for 11 months, and penalty-free withdrawal of full amount allowed after six days. So higher yield than Prime MM, and yield locked in for 11 months.

You might be able to find a savings account at about 2.4%. Check out DepositAccounts.

Kevin
+1

You Many options. Just don’t leave The money where it is now at near 0%.

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adamb
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Re: Suggestions for cash or cash equivalent positions?

Post by adamb » Fri Nov 08, 2019 3:11 pm

Kevin M wrote:
Fri Nov 08, 2019 3:05 pm
Probably not VCTXX, but tell me your federal and state marginal tax rates and I'll tell you the TEY. At my rates of 27% fed and 8% state, VCTXX TEY is only 1.47% (SEC yield = 0.95%).

The tax-exempt MM fund yields are cyclical, so at some times they may be competitive, but not now.

As a CA resident VMFXX (Fed MM) with a relatively high state income tax rate, probably is next best to VUSXX. In 2018, about 78% of its income was exempt from state tax. For me, compound TEY of VMFXX is 1.90% (SEC yield = 1.72%), so a bit better than Prime MM at compound yield of 1.84%.

Kevin
Hi Kevin,

Thanks. Federal and state are 22 and 9.3% respectively.

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adamb
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Re: Suggestions for cash or cash equivalent positions?

Post by adamb » Fri Nov 08, 2019 3:23 pm

Kevin M wrote:
Fri Nov 08, 2019 2:52 pm
Ally no-penalty CD yield is 1.90% APY, with the yield locked in for 11 months, and penalty-free withdrawal of full amount allowed after six days. So higher yield than Prime MM, and yield locked in for 11 months.

You might be able to find a savings account at about 2.4%. Check out DepositAccounts.

Kevin
Simplicity probably prevents me from considering this. My wife is already annoyed at me for considering anything but a savings account for our savings, so our cash position is best limited to options at Schwab, Vanguard, or PenFed. Vanguards MMs seem the ticket.

Thanks for offering to help with TEYs.

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Re: Suggestions for cash or cash equivalent positions?

Post by Kevin M » Fri Nov 08, 2019 7:04 pm

adamb wrote:
Fri Nov 08, 2019 3:11 pm
Kevin M wrote:
Fri Nov 08, 2019 3:05 pm
Probably not VCTXX, but tell me your federal and state marginal tax rates and I'll tell you the TEY. At my rates of 27% fed and 8% state, VCTXX TEY is only 1.47% (SEC yield = 0.95%).

The tax-exempt MM fund yields are cyclical, so at some times they may be competitive, but not now.

As a CA resident VMFXX (Fed MM) with a relatively high state income tax rate, probably is next best to VUSXX. In 2018, about 78% of its income was exempt from state tax. For me, compound TEY of VMFXX is 1.90% (SEC yield = 1.72%), so a bit better than Prime MM at compound yield of 1.84%.

Kevin
Hi Kevin,

Thanks. Federal and state are 22 and 9.3% respectively.
Assuming those are your marginal tax rates 1, Fed MM has an estimated compound TEY for you of 1.92%, which assumes 78% of income is exempt from state tax, based on the 2018 numbers. We don't know the exact percent that will be exempt from state income tax until Vanguard publishes it's US government obligations tax document in early 2020, but I think it's reasonable to use the 2018 percentage as an estimate.

So Fed MM might be a better choice for you than Prime MM at 1.84% compound yield for less than the $50K minimum to get into VUSXX, which would have a compound TEY for you of 2.04%.

1. Your marginal tax rates may not be the same as your tax brackets, due to phase-ins and phase-outs of credits, deductions, etc.

Kevin
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Re: Suggestions for cash or cash equivalent positions?

Post by Kevin M » Fri Nov 08, 2019 7:13 pm

adamb wrote:
Fri Nov 08, 2019 3:23 pm
Kevin M wrote:
Fri Nov 08, 2019 2:52 pm
Ally no-penalty CD yield is 1.90% APY, with the yield locked in for 11 months, and penalty-free withdrawal of full amount allowed after six days. So higher yield than Prime MM, and yield locked in for 11 months.

You might be able to find a savings account at about 2.4%. Check out DepositAccounts.

Kevin
Simplicity probably prevents me from considering this. My wife is already annoyed at me for considering anything but a savings account for our savings, so our cash position is best limited to options at Schwab, Vanguard, or PenFed. Vanguards MMs seem the ticket.

Thanks for offering to help with TEYs.
An Ally NP CD is closer to a savings account than is a money market fund. It's FDIC insured, and you can withdraw your money any time after six days. If I didn't have better choices (I have a local bank savings account that pays 2.50% through Jan 2021), I wouldn't hesitate to use Ally NP CDs for savings--I've done so in the past.

I would open several of them, so you could do an early withdrawal from one if you needed some cash, but keep the rest earning the relatively high yield until maturity. With the amount you're talking about, I'd consider putting $10K each into them. Of course this makes it a little more complicated, but opening accounts online (including CDs) at Ally is super simple, as is doing an early withdrawal from a CD.

The thing to consider is that MM yields have been falling, and I expect them to continue to fall for awhile, so I'd prefer to lock in a competitive yield for awhile, as you can do with the Ally NP CD for 11 months.

Kevin
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Topic Author
adamb
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Re: Suggestions for cash or cash equivalent positions?

Post by adamb » Fri Nov 08, 2019 7:24 pm

Kevin M wrote:
Fri Nov 08, 2019 7:13 pm
adamb wrote:
Fri Nov 08, 2019 3:23 pm
Kevin M wrote:
Fri Nov 08, 2019 2:52 pm
Ally no-penalty CD yield is 1.90% APY, with the yield locked in for 11 months, and penalty-free withdrawal of full amount allowed after six days. So higher yield than Prime MM, and yield locked in for 11 months.

You might be able to find a savings account at about 2.4%. Check out DepositAccounts.

Kevin
Simplicity probably prevents me from considering this. My wife is already annoyed at me for considering anything but a savings account for our savings, so our cash position is best limited to options at Schwab, Vanguard, or PenFed. Vanguards MMs seem the ticket.

Thanks for offering to help with TEYs.
An Ally NP CD is closer to a savings account than is a money market fund. It's FDIC insured, and you can withdraw your money any time after six days. If I didn't have better choices (I have a local bank savings account that pays 2.50% through Jan 2021), I wouldn't hesitate to use Ally NP CDs for savings--I've done so in the past.

I would open several of them, so you could do an early withdrawal from one if you needed some cash, but keep the rest earning the relatively high yield until maturity. With the amount you're talking about, I'd consider putting $10K each into them. Of course this makes it a little more complicated, but opening accounts online (including CDs) at Ally is super simple, as is doing an early withdrawal from a CD.

The thing to consider is that MM yields have been falling, and I expect them to continue to fall for awhile, so I'd prefer to lock in a competitive yield for awhile, as you can do with the Ally NP CD for 11 months.

Kevin
Sound advice. Thank you for the help.

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Re: Suggestions for cash or cash equivalent positions?

Post by realitytest » Fri Nov 08, 2019 8:26 pm

Just for fun (and with the understanding that it's doubtless temporary), I happen to have found a checking account through Orion (Federal
Credit Union) in TN that pays an incredible 4% on up to a $30,000 balance. It's paid that much for a shockingly long period but even though it's bound to drop in today's rate climate, it's still a great place to park either an emergency slush fund or (my case) money you're sure of needing in the next year or two. Of course, it's ideal if you can keep up that balance in place instead of spending it (it's far more than any other high yield accounts allow a depositor) and avoids wasting interest on a checking account.

Figure at the very least, you'll be pulling in an extra $100/month for a checking account not counting taxes.
They have a few not too onerous requirements: a direct deposit of at least $500/month total and eight debit card transactions of any amount (I find getting a bunch of fruit of variable weights allows me to take care of that requirement in one fell swoop!)

FWIW you don't have to belong to anything to qualify for this credit union.
Last edited by realitytest on Fri Nov 08, 2019 8:45 pm, edited 1 time in total.

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Re: Suggestions for cash or cash equivalent positions?

Post by realitytest » Fri Nov 08, 2019 8:37 pm

And BTW while considering special "feel good" bargains available now (here, in credit cards) be aware that American Express has a card that gives 6% back on groceries and 3% back on gas (and a few other smaller perks). They'll pay that on up to $6000.yr on groceries.

For a $95 annual fee (yes, you do have to pay it at least twice), they'll return you a $300 bonus if you spend at least $1000 (on anything) within the first three months.

I've already gotten that back, not even counting about $35/month cashback on groceries and I live alone! I should have found a way to cash in a last bargain , but what's more you get $75 per followed recommendation for the card up to ~ $500/year. I wonder how many of my Bogley friends out there will take advantage of this. Nevermind, enjoy! :sharebeer

Ferdinand2014
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Re: Suggestions for cash or cash equivalent positions?

Post by Ferdinand2014 » Sat Nov 09, 2019 12:35 am

adamb wrote:
Fri Nov 08, 2019 2:45 pm
Hi BHs,

Can anyone suggest best places to park $20-30k "cash" for an emergency fund? My wife and I have been sitting on this much in a Schwab savings account, which earns essentially nothing (0.23%). We could be doing better in other vehicles, but I have no experience with CDs and MMs.

I understand we're only looking at a 1 to 2% upside, but it bothers me to essentially throw 300 to 600 dollars away each year.

For context, we have accounts and thus easy access to vehicles at Schwab, Vanguard, and PenFed.

Thank you.
4 week treasury bills bought at auction and put on auto roll. I do this at Fidelity. Schwab May also offer this. Cost me $0 transaction costs and 0.00 expense ratio. Safest most liquid investment in the world.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

anoop
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Re: Suggestions for cash or cash equivalent positions?

Post by anoop » Sat Nov 09, 2019 1:07 am

Ferdinand2014 wrote:
Sat Nov 09, 2019 12:35 am
adamb wrote:
Fri Nov 08, 2019 2:45 pm
Hi BHs,

Can anyone suggest best places to park $20-30k "cash" for an emergency fund? My wife and I have been sitting on this much in a Schwab savings account, which earns essentially nothing (0.23%). We could be doing better in other vehicles, but I have no experience with CDs and MMs.

I understand we're only looking at a 1 to 2% upside, but it bothers me to essentially throw 300 to 600 dollars away each year.

For context, we have accounts and thus easy access to vehicles at Schwab, Vanguard, and PenFed.

Thank you.
4 week treasury bills bought at auction and put on auto roll. I do this at Fidelity. Schwab May also offer this. Cost me $0 transaction costs and 0.00 expense ratio. Safest most liquid investment in the world.
Would Fidelity cancel the auto roll if yields went negative?

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Re: Suggestions for cash or cash equivalent positions?

Post by 1789 » Sat Nov 09, 2019 1:11 am

We keep our emergency funds and cash at VMMXX and we are happy with it.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

Ferdinand2014
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Re: Suggestions for cash or cash equivalent positions?

Post by Ferdinand2014 » Sat Nov 09, 2019 9:52 am

anoop wrote:
Sat Nov 09, 2019 1:07 am
Ferdinand2014 wrote:
Sat Nov 09, 2019 12:35 am
adamb wrote:
Fri Nov 08, 2019 2:45 pm
Hi BHs,

Can anyone suggest best places to park $20-30k "cash" for an emergency fund? My wife and I have been sitting on this much in a Schwab savings account, which earns essentially nothing (0.23%). We could be doing better in other vehicles, but I have no experience with CDs and MMs.

I understand we're only looking at a 1 to 2% upside, but it bothers me to essentially throw 300 to 600 dollars away each year.

For context, we have accounts and thus easy access to vehicles at Schwab, Vanguard, and PenFed.

Thank you.
4 week treasury bills bought at auction and put on auto roll. I do this at Fidelity. Schwab May also offer this. Cost me $0 transaction costs and 0.00 expense ratio. Safest most liquid investment in the world.
Would Fidelity cancel the auto roll if yields went negative?
You determine auto roll cancelation not Fidelity.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Suggestions for cash or cash equivalent positions?

Post by Kevin M » Sat Nov 09, 2019 1:04 pm

Ferdinand2014 wrote:
Sat Nov 09, 2019 12:35 am
4 week treasury bills bought at auction and put on auto roll. I do this at Fidelity. Schwab May also offer this. Cost me $0 transaction costs and 0.00 expense ratio. Safest most liquid investment in the world.
This made more sense a few months ago when Treasury yields were more competitive. Yield on 1m Tbill is 1.56%, which at OP's marginal tax rates is TEY of 1.77%. Fed MM at compound yield of 1.72% is compound TEY of 1.91%. Higher yield, simpler, just a smidge riskier, and at a broker at which OP already has an account.

For a more apples to apples comparison, Treasury MM (VUSXX) compound yield is 1.79%, which for OP would be compound TEY of 2.03% (if OP could scrape up $50K for the initial investment). VUSXX holds mostly Tbills in the 1m to 3m maturity range, so basically is about as safe as holding Tbills directly.

One reason VUSXX has higher yield than short-term Tbills is that the Tbills it holds that were bought one to three months ago are pumping out the higher yields of back then. But that doesn't seem to explain all the difference. My model indicates VUSXX yield should be 1.71%, so there's about six basis points of yield premium I can't explain--this happens from time to time with VUSXX--see this thread: Why is Vanguard Treasury Money Market yield so high?. We are in one of those periods now:

Image

Having said that, for someone who wants to stick with Fidelity only, a 1m Tbill currently has a higher TEY for OP than any of the Fidelity MM funds, so rolling 1m Tbills could make sense. Tbills are very liquid, so if you need cash before maturity, in the current environment you're likely to earn your original yield or more if you sell before maturity, as you'll probably earn a premium due to falling yields. I had some 6-month Tbills on auto-roll in my Fidelity cash-management brokerage account, and I just sold half of them to fund this month's expenses. Note that selling some of these Treasuries before maturity cancelled the auto-roll for the remaining Treasuries in that lot.

Kevin
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