Money market rates... Vanguard Prime vs online banks

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
shak_VF
Posts: 18
Joined: Tue Jul 26, 2016 8:15 am

Money market rates... Vanguard Prime vs online banks

Post by shak_VF »

Am I looking at it right. Currently .66% for Prime and more like 1.50% currently for Marcus and Cap One?
User avatar
JoMoney
Posts: 9849
Joined: Tue Jul 23, 2013 5:31 am

Re: Money market rates... Vanguard Prime vs online banks

Post by JoMoney »

You're not missing anything. There have been multiple threads on this.
I believe there is a strong consensus that in most circumstances a high-yield FDIC insured bank account is preferable to anything being offered by money market funds.

FWIW, I believe bank rates will drift down over time if market rates stay low. Money market funds adjust quickly with the market, so when market rates rise higher the funds will likely be leading the way up.
Last edited by JoMoney on Wed Apr 29, 2020 9:25 am, edited 1 time in total.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Silk McCue
Posts: 4825
Joined: Thu Feb 25, 2016 7:11 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by Silk McCue »

Shock and awe. Your eyes are working. They are two different types of instruments. Lots of threads on alternatives to current VG MM rates.

Cheers
User avatar
Kenkat
Posts: 6730
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Money market rates... Vanguard Prime vs online banks

Post by Kenkat »

Prior to the global pandemic, Prime MM was yielding close to 2.5%. Now it’s heading to near zero, just like it did post 2008-09. So online banks are the place to be right now, although that could change again going forward but not likely anytime soon.
mervinj7
Posts: 1566
Joined: Thu Mar 27, 2014 3:10 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by mervinj7 »

shak_VF wrote: Wed Apr 29, 2020 9:20 am Am I looking at it right. Currently .66% for Prime and more like 1.50% currently for Marcus and Cap One?
You should also consider the transfer bonuses for each of these. Cap One has $450 bonus offer for some existing customers if they transfer in $50k.
patrick
Posts: 1805
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Money market rates... Vanguard Prime vs online banks

Post by patrick »

You can get up to 1.75% on plain savings accounts (see https://www.doctorofcredit.com/high-int ... gs-to-get/ for an extensive list) so the gap is even wider. The best deposit accounts have beaten money markets funds for quite some time.
Mode32
Posts: 196
Joined: Mon Mar 02, 2020 1:24 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by Mode32 »

What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?
User avatar
anon_investor
Posts: 3723
Joined: Mon Jun 03, 2019 1:43 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by anon_investor »

Mode32 wrote: Wed Apr 29, 2020 10:27 am What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?
Not at these rate spreads. Even after taxes at the highest tax bracket, you would be making more with the online bank account.
stan1
Posts: 9134
Joined: Mon Oct 08, 2007 4:35 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by stan1 »

Yields on these accounts vary over time and different market conditions.

I move between types of cash accounts (including CDs) based on what yield is available.

I have not seen the benefit of muni money market funds for many years now.
Mode32
Posts: 196
Joined: Mon Mar 02, 2020 1:24 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by Mode32 »

anon_investor wrote: Wed Apr 29, 2020 10:32 am
Mode32 wrote: Wed Apr 29, 2020 10:27 am What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?
Not at these rate spreads. Even after taxes at the highest tax bracket, you would be making more with the online bank account.
Thanks for the reasoning. No experience looking at this, but isn't it expected that bank rates will eventually come down similar to money markets, so why bother moving it (say from money market to bank)? Also, what is the usual lag time of bank rates coming down to money market levels? I'm tracking money markets respond faster to rate increases compared to banks.
User avatar
quisp65
Posts: 133
Joined: Wed Apr 10, 2019 7:44 am
Location: San Diego CA

Re: Money market rates... Vanguard Prime vs online banks

Post by quisp65 »

If I researched right... the best high yield savings accounts dropped down to 0.80%ish during their lowest points around 2013ish. I wonder if they were about equal then to the best money markets? Maybe past performance won't be what we go through now though.
Plan: 75/25 stock index/cash investments, one-way balance market highs, slide withdrawal rate to comfort
User avatar
Kenkat
Posts: 6730
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Money market rates... Vanguard Prime vs online banks

Post by Kenkat »

quisp65 wrote: Wed Apr 29, 2020 10:43 am If I researched right... the best high yield savings accounts dropped down to 0.80%ish during their lowest points around 2013ish. I wonder if they were about equal then to the best money markets? Maybe past performance won't be what we go through now though.
Funds such as Prime MM were at 0.01% in that time frame. I kept a couple thousand bucks in Prime MM then just for flexibility and to keep it open and I’d earn a few cents a month on my balance. The rest went to an online savings account. When rates rose, I moved back to Prime MM for awhile. Now I’m back to my online savings account.
User avatar
anon_investor
Posts: 3723
Joined: Mon Jun 03, 2019 1:43 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by anon_investor »

quisp65 wrote: Wed Apr 29, 2020 10:43 am If I researched right... the best high yield savings accounts dropped down to 0.80%ish during their lowest points around 2013ish. I wonder if they were about equal then to the best money markets? Maybe past performance won't be what we go through now though.
Mode32 wrote: Wed Apr 29, 2020 10:41 am
anon_investor wrote: Wed Apr 29, 2020 10:32 am
Mode32 wrote: Wed Apr 29, 2020 10:27 am What are the thoughts about tax savings (in a taxable account) of having a Municipal Money Market (State and some Federal tax free) with Vanguard is worth the lower rates compared to online banks which may have higher rates (at least for now, but that could change), but taxes would be owed on it?
Not at these rate spreads. Even after taxes at the highest tax bracket, you would be making more with the online bank account.
Thanks for the reasoning. No experience looking at this, but isn't it expected that bank rates will eventually come down similar to money markets, so why bother moving it (say from money market to bank)? Also, what is the usual lag time of bank rates coming down to money market levels? I'm tracking money markets respond faster to rate increases compared to banks.
If I remember correctly, money market rates were even lower than high yield savings accounts during that time period. I definitely remember not even bothing with Vanguard Money Market Funds for many years after they went basically to 0 in 2009. Back then think I had ING Direct (now Capital One 360), but it might have been called Orange or Electric Orange back then. In any case, it probably makes more sense to move money to a high yield savings account and enjoy the free lunch while it lasts. Maybe put some of the money into no penalty CDs (no interest rate penalty for redeeming early) or regular CDs if you know you do not need the money. As soon as the Fed announced the first 50 basis rate cut, I immediately started shifting cash into no penalty CDs. I am glad I did, locking in 1.85% on a bunch of them. I have other no penalty CDs at even nhigher rates (2.05% to 2.30%) that I locked in pre-COVID19, when the Fed was cutting rates in 2019. I think right now Marcus, Ally Bank, CIT Bank offer no penalty CDs that range from 1.40% to 1.55%. I think regular CDs may be available at slightly better rates, maybe 1.6%.
PatrickA5
Posts: 534
Joined: Mon Jul 28, 2014 1:55 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by PatrickA5 »

I'm in the same boat. Early last year I closed my Ally accounts and moved everything to Fidelity MM just to simplify my finances. Now my Fidelity account is paying .45. So, today I reopened my Ally account and moved my money back out of Fidelity to a savings and CD - both at 1.5%. Fortunately, I didn't have to reapply at Ally. They were able to just activate my old account. Quite the hassle, but I'm looking at a couple grand a year difference in interest.
2020 ButClassic
Posts: 31
Joined: Sat Feb 29, 2020 8:27 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by 2020 ButClassic »

Online banks with high yield savings have had several weeks to adjust and lower rates even further but chose to pause. They may have found a sweet spot to maintain profitability while remaining competitive with each other.

I wouldn't be surprised if the rates stayed and perhaps even climbed. There is more confidence and stability in the financial world than a couple of weeks ago -- at least as measured by the equity markets.
Mercurius
Posts: 6
Joined: Sat Apr 25, 2020 7:12 am

Re: Money market rates... Vanguard Prime vs online banks

Post by Mercurius »

It seems to take days for the funds to be posted to the settlement account. Wouldn't that make it more difficult to buy in if the market starts dropping again?
Silk McCue
Posts: 4825
Joined: Thu Feb 25, 2016 7:11 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by Silk McCue »

Mercurius wrote: Wed Apr 29, 2020 10:39 pm It seems to take days for the funds to be posted to the settlement account. Wouldn't that make it more difficult to buy in if the market starts dropping again?
I can place an order today using funds in my previously linked bank accounts and the order will be executed today.

Cheers
PatrickA5
Posts: 534
Joined: Mon Jul 28, 2014 1:55 pm

Re: Money market rates... Vanguard Prime vs online banks

Post by PatrickA5 »

Talked to a nice lady at Ally yesterday while re-opening my account there. She said she has had tons of people transferring money from the big brokerages the last couple of weeks.

Also, for the first time since I opened my Fidelity accounts over a year ago, I had someone call wanting me to set up an appointment with my Fidelity advisor to discuss things. Last year at this time, I couldn't even get my Fidelity guy to return my calls or emails. Could be that VG and Fidelity are seeing money flowing out like the Ally lady said.

Times are sad when people are moving money around to get that great 1.5% interest rate :(
Post Reply