Vanguard Money Market Funds - Differences in Returns?

[water2357]

Anyone have any recommendations on the Vanguard Money Market Funds

Treasury
Federal
Cash Reserves

Treasury returns appeared to be increasing more quickly than the other two until now. It looks like both Federal and Cash Reserves have now slightly leaped over the Treasury MM.

Does anyone have any information on where the returns on these 3 funds are headed as the year progresses?

Treasury Bills of 1 to 3 months already appear to be slightly over 1%. Will all three funds ultimately settle in to about the same rate, or will one most likely have better returns than the others and which one?

Thanks for any guidance.

[retired@50]

Does anyone have any information on where the returns on these 3 funds are headed as the year progresses?

I suspect they will pretty much mimic the Fed funds rate with about a 30 day lag.

Regards,

[Tom_T]

The Treasury MM vs. Federal MM: different components, different duration. Treasury has higher yield.

[water2357]

So, if you had to choose one of the three, which one would it be?
Federal MM
Treasury MM
Cash Reserves

Or is there a reason to own more than one?

[heartwood]

So, if you had to choose one of the three, which one would it be?
Federal MM
Treasury MM
Cash Reserves

Or is there a reason to own more than one?

from vanguard site

VMFXX Vanguard Federal MM 0.58% as of 05/10/22
VUSXX Vanguard Treasury MM 0.46%
VMRXX Vanguard Cash Res Fed MM Adm 0.54%

FWIW, I looked a week or so ago. At that time VUSXX was at the same 0.46% and the others were lower. I moved into VUSXX from VMFXX with a sizable amount. Looks like with a week's time I should have stayed the course. No ideas where anything is heading in the year ahead.

[retired@50]

So, if you had to choose one of the three, which one would it be?
Federal MM
Treasury MM
Cash Reserves

Or is there a reason to own more than one?

I just use the Federal Money Market Fund since it's the default settlement account. Simple.

With the conservative approach that Vanguard takes to managing their money market funds I have no worries that any of them will ever break the buck and lose value.

Having said all that, my cash is currently sitting at my local credit union because they're paying me 1%. As soon as the rate on the Vanguard fund exceeds the credit union I'll move my cash.

Regards,

[diceman3]

So, if you had to choose one of the three, which one would it be?
Federal MM
Treasury MM
Cash Reserves

Or is there a reason to own more than one?

The Federal MM is the default Account. Recently, all 3 MM Fund prospectives we’re sent out, describing the info on all. While it’s unlikely that Cash Reserve Or Federal MM would default, it is important to note that Treasury MM are fully guaranteed by the U.S Government. With the other 2 MM, only 80% is guaranteed by the U.S. Government. FAIW.

[mega317]

How much money are we talking about here? It's not likely to make much difference. And you can always move your money around day to day to capture the greatest hundredth of a percent if you want.

Note that the treasury fund will be almost entirely exempt from state income tax, if that's relevant for you.

[NYCPete]

How much money are we talking about here? It's not likely to make much difference. And you can always move your money around day to day to capture the greatest hundredth of a percent if you want.

Note that the treasury fund will be almost entirely exempt from state income tax, if that's relevant for you.

I want to emphasize mega317's point, as it's instructive. If you're in a high tax bracket and you have a substantial amount of money sitting in a MM account, it's worth figuring out whether you'd be better off taking a lower yield that's exempt from state and/or federal taxes, or just going for the absolute highest rate. If you're in a state that Vanguard runs a muni MM fund for, that may be worth considering too.

Even interest from the default settlement fund, Vanguard's Federal Money Market Fund, is partly exempt from state taxes. Most years it's been about three quarters of the interest. Whether you can parse it out to this level is state dependent, so your mileage may vary. Here's the 2021 figures:
https://personal.vanguard.com/pdf/USGOIN_01_2022.pdf

Taking your tax rate into account may make a bigger difference than yield chasing.

Best,
Peter

[Kevin M]

As of today:



The taxable-equivalent yields (TEY) and after-tax yields (ATY) are based on my expected marginal tax rates of 22% fed and 9.3% state.

As of now I'd use VMFXX in both tax-advantaged and taxable. However, for 2021, about 73% of the income was from USGO (no state income tax), so I use that as an estimate for 2022. If I want certainty in taxable, I'd use one of the muni MM funds.

Here is the history of SEC yields for the taxable MM funds for the past 120 days:



And here are the TEYs (for my tax rates) for the last 120 days:



Kevin

[water2357]

Thanks for the additional analysis and to all for pointing out the state income tax implications. It's been so long since MM Funds yielded anything that I wasn't immediately considering the state income tax effect. Will need to keep all these issues in mind as yields continue to change. Currently looks like the Federal MM Fund may be the better option, but still need to look more closely at the state tax. Was trying to keep the number of Funds to a minimum, but may need to consider using 2. Thanks for the graphs, interesting comparison.

[Small Change]

It looks like Vanguard’s California MMF had, as of March 31, 19.8% of its assets in holdings subject to AMT.

I am in California and am not currently subject to AMT. If I put money into that fund, would I likely owe AMT, and is that a significant negative for this fund?

Here’s where I saw the 19.8% reference.

https://investor.vanguard.com/mutual-f ... olio/vctxx

[smooth_rough]

[OT comment removed by admin LadyGeek] Wholesale inflation climbed 11% in april.

[Northern Flicker]

Cash Reserves is like Federal but Cash Reserves has a slightly longer duration. CR should have a slightly higher return but slightly lower liquidity. When rates are rising, turnover to instruments at the higher rates will occur faster with Federal.

Treasury is like Federal but Treasury is 100% either instruments backed by the full faith and credit of the US Treasury, or instruments collateralized by such.

Treasury will generate very close to 100% of interest exempt from state and local taxes.

[mega317]

As of today:

Kevin I wonder if you wouldn’t mind terribly sharing your calculations? I plugged the numbers in myself as a learning exercise. I get the same ATY AND TEY in 8 cases but I’m a little off on TEY for the treasury and national muni funds. I’m using sec yield/(1-.093) for treasury and /(1-.22) for muni. Thanks

[rossington]

Cash Reserves is like Federal but Cash Reserves has a slightly longer duration. CR should have a slightly higher return but slightly lower liquidity. When rates are rising, turnover to instruments at the higher rates will occur faster with Federal.

Treasury is like Federal but Treasury is 100% either instruments backed by the full faith and credit of the US Treasury, or instruments collateralized by such.

Treasury will generate very close to 100% of interest exempt from state and local taxes.

I would add that Treasury has the longest average maturity of the the three,hence the yield lag.
Also it has the highest distribution (dividend) of the three as of the end of April.
FWIW

[increment]

I am in California and am not currently subject to AMT. If I put money into that fund, would I likely owe AMT, and is that a significant negative for this fund?

Taxpayers have to (re)calculate a minimum amount of income tax owed using a second system, with a very large exemption but without many tax deductions. If that minimum amount is greater than the amount calculated the regular way, then you additionally pay the difference and it's called the "AMT." If you are far from having these two calculations be close to each other (which is the normal situation) and are not planning to get a huge amount of income that is subject to AMT but tax-exempt in the regular calculation (which seems probable if you are talking about the kind of amounts you would get from a money-market fund), your AMT-taxable dividends are unlikely to switch you over to the AMT-owing side.

See Fairmark for the basic info about the AMT.

[arthurdawg]

I had to go to my account and look it up... it appears I am in the Federal fund now.

Once upon a time I was in the Prime money market... which I guess has changed? My brain vaguely recalls this... but not the details.


Anyway... I generally don't hold funds there long enough for it to matter between the three. The yields are never that much better.

[Kevin M]

As of today:

Kevin I wonder if you wouldn’t mind terribly sharing your calculations? I plugged the numbers in myself as a learning exercise. I get the same ATY AND TEY in 8 cases but I’m a little off on TEY for the treasury and national muni funds. I’m using sec yield/(1-.093) for treasury and /(1-.22) for muni. Thanks

Please see this thread from 2018: Taxable Equivalent Yield (TEY). It shows the derivations of the formulas I use.

Kevin

[Northern Flicker]

Cash Reserves is like Federal but Cash Reserves has a slightly longer duration. CR should have a slightly higher return but slightly lower liquidity. When rates are rising, turnover to instruments at the higher rates will occur faster with Federal.

Treasury is like Federal but Treasury is 100% either instruments backed by the full faith and credit of the US Treasury, or instruments collateralized by such.

Treasury will generate very close to 100% of interest exempt from state and local taxes.

I would add that Treasury has the longest average maturity of the the three,hence the yield lag.
Also it has the highest distribution (dividend) of the three as of the end of April.
FWIW

I don’t believe that was the case in the past. I wonder if Vanguard reduced the average maturity of VMRXX (cash reserves …) as a liquidity management decision or an active decision to try to boost return a little when short rates are rising.

If memory serves, I thought Vanguard was talking about an average maturity of around 80 days for the Cash Reserves fund when they announced that Prime MM had morphed into that. But I think the goal was to have a slightly higher return without the commercial paper exposure that Prime MM had, so maybe it makes sense that they would shorten duration as an active management decision in the current environment.

One other difference is that in brokerage accounts, the Federal MM fund has no minimum balance requirement because it is the settlement fund. The other two have a reasonably low $3K minimum. (Treasury MM used to have a $50K minimum that made it less useful than the Federal MM fund at that time).

[Northern Flicker]

So, if you had to choose one of the three, which one would it be?
Federal MM
Treasury MM
Cash Reserves

Or is there a reason to own more than one?

I use Federal MM for transient cash flows— distributions are realized there and sit there until I either move to them to a bank account or (re-)invest them. Or if I were to move cash to Vanguard for investment, I would deposit directly to Federal MM so that it would be readily available for either a mutual fund or ETF purchase.

If I had a cash position in my asset allocation, or otherwise maintained a cash bucket or emergency fund, ie if the asset were more of a permanent or long-term holding, I would use the Treasury MM fund for the slightly higher level of safety, and larger exemption from state income tax.

[Electron]

Vanguard Federal Money Market fund is showing 61.2% of assets in repurchase agreements as of 4-30-22. That may be an issue for the state tax exemption as there are threshold requirements in some states.

California, New York, and Connecticut require that 50% of assets at each quarter-end consist of U.S. Government obligations.

The last two fund reports show repurchase agreements at 24.2% and 43.8% of assets respectively. The concern is that the 2022 percentage in U.S. Government obligations could be quite a bit less than 2021.

[Small Change]

I am in California and am not currently subject to AMT. If I put money into that fund, would I likely owe AMT, and is that a significant negative for this fund?

Taxpayers have to (re)calculate a minimum amount of income tax owed using a second system, with a very large exemption but without many tax deductions. If that minimum amount is greater than the amount calculated the regular way, then you additionally pay the difference and it's called the "AMT." If you are far from having these two calculations be close to each other (which is the normal situation) and are not planning to get a huge amount of income that is subject to AMT but tax-exempt in the regular calculation (which seems probable if you are talking about the kind of amounts you would get from a money-market fund), your AMT-taxable dividends are unlikely to switch you over to the AMT-owing side.

See Fairmark for the basic info about the AMT.

Thank you!

[Kevin M]

The increase in fed MM fund leveled off today, with no change since Friday at 0.65%.

Treasury MM inched up a basis point, to 0.51%.



The muni MM funds continued their upward climb, with CA muni MM at 0.56% (TEY = 0.82% at 22% fed 9.3% state) and national muni MM at 0.60% (TEY = 0.79% at same marginal tax rates).



Kevin

[water2357]

Thanks for the updated graphs. Interesting comparison of the various Funds rates of increasing returns.

[Kevin M]

Update:



(For Fed marginal 22% and state 9.3%).

Kevin

[Kevin M]

Yield on VG Cash reserves MM (VMRXX) and Fed MM (VMFXX) shot up today.

VMFXX SEC yield increased from 0.84% yesterday to 1.19% today.

VMRXX SEC yield increased from 0.82% yesterday to 1.14% today.



The muni MM funds seemed to have bottomed out for this cycle. VMSXX SEC yield jumped from 0.55% two days ago to 0.74% today. Here are TEYs for my rates of 22% Fed and 9.3% state.



Currently, Fed MM would have the highest TEY for me of 1.31% if the amount exempt from state income tax is about the same as last year. There has been some speculation that it may not meet the requirement for state income tax exemption in CA this year, so if I don't want to risk this, the next highest TEY is VMRXX at 1.14%, followed by Treasury MM (VUSXX) at 1.07%.

Kevin

[retired@50]

There has been some speculation that it may not meet the requirement for state income tax exemption in CA this year...

Why not?

Regards,

[Kevin M]

There has been some speculation that it may not meet the requirement for state income tax exemption in CA this year...

Why not?

Regards,

Because they have 58.5% in repurchase agreements, which apparently are not exempt from state income tax. For CA, 50% of income must be from USGO, and the fund must have held at least 50% in USGO at the end of each quarter.

[retired@50]

There has been some speculation that it may not meet the requirement for state income tax exemption in CA this year...

Why not?

Regards,

Because they have 58.5% in repurchase agreements, which apparently are not exempt from state income tax. For CA, 50% of income must be from USGO, and the fund must have held at least 50% in USGO at the end of each quarter.

I knew about the 50% rule for CA, but where have you read that repurchase agreements aren't exempt from state income tax?

Regards,

[Kevin M]

There has been some speculation that it may not meet the requirement for state income tax exemption in CA this year...

Why not?

Regards,

Because they have 58.5% in repurchase agreements, which apparently are not exempt from state income tax. For CA, 50% of income must be from USGO, and the fund must have held at least 50% in USGO at the end of each quarter.

I knew about the 50% rule for CA, but where have you read that repurchase agreements aren't exempt from state income tax?

Regards,

Several forum members have mentioned it. I think Electron is one. I'm not sure myself.

[NYCPete]

There has been some speculation that it may not meet the requirement for state income tax exemption in CA this year...

Why not?

Regards,

Because they have 58.5% in repurchase agreements, which apparently are not exempt from state income tax. For CA, 50% of income must be from USGO, and the fund must have held at least 50% in USGO at the end of each quarter.

I knew about the 50% rule for CA, but where have you read that repurchase agreements aren't exempt from state income tax?

Regards,

Several forum members have mentioned it. I think Electron is one. I'm not sure myself.

Appears to be a SCOTUS decision from the 1990s. TIL.

https://www.nytimes.com/1994/12/13/busi ... erest.html

Best,
Peter

[water2357]

Thanks for the update on the SEC yield graphs. Do you believe that the Fed MM Fund has now surpassed the Treas MM Fund on an ongoing basis? Or do you believe that the Treas MM Fund will catch up to the Fed MM Fund again within a month?

[Electron]

In regards to the state tax exemption for Vanguard Federal Money Market fund in California, New York, and Connecticut, the percentage in repurchase agreements at the end of June should be available in a few weeks.

We also need to know the percentage at the end of March. California, New York, and Connecticut require that 50% of assets at each quarter-end consist of U.S. Government obligations. If the requirement was not met at the end of March, it would appear that VMFXX would be fully taxable in those states for 2022.

On 4-30-22, the fund had 61.2% of assets in repurchase agreements. The figure was 58.5% on 5-30-22.

Here is some information from the two most recent fund reports for VMFXX.

8-31-21: 76.5% in U.S. Government obligations, 24.2% in repurchase agreements

2-28-22: 56.7% in U.S. Government obligations, 43.8% in repurchase agreements

One would assume that the fund would generally seek out the highest yields available that also meet the requirements of the fund. However, we might want to stay optimistic on this issue. The turnover in these funds is very high and it might be relatively easy to adjust portfolio weightings as desired.

[Electron]

Do you believe that the Fed MM Fund has now surpassed the Treas MM Fund on an ongoing basis? Or do you believe that the Treas MM Fund will catch up to the Fed MM Fund again within a month?

Here is an updated chart showing SEC 7 day yields through June 17.

The yield on the Federal Money Market fund has risen quite sharply after each of the increases in the Fed Funds rate. The slope of the rise seems surprising considering the 24 day average maturity of the fund. After the initial rise the yield has continued to increase at a more measured pace apparently anticipating the next Fed rate hike.

The rise in yield has been more gradual with the Treasury Money Market fund. Average maturity is 35 days. After the previous rate hike, the yield on the Treasury Money Market fund surpassed the yield on the Federal Money Market fund after about a month.

[water2357]

Thanks, the graphs have been very helpful in understanding how the various Money Market Fund rates may progress as rates continue to rise. It appears to be dependent on the percentage of each fund invested at various terms. I did not realize that the Fed MM Fund would increase in such noticeable steps/jumps.

[RetireGood]

Hi

I have some CASH.
Should I move it to SOFI (1.25%) or buy Treasury Bills/Notes or move to VMFXX?
I do not need this until end of this year, but would like to pull out and move to stocks if S&P breaches below 3500 mark.

Thanks

[RetireGood]

How much money are we talking about here? It's not likely to make much difference. And you can always move your money around day to day to capture the greatest hundredth of a percent if you want.

Note that the treasury fund will be almost entirely exempt from state income tax, if that's relevant for you.

I want to emphasize mega317's point, as it's instructive. If you're in a high tax bracket and you have a substantial amount of money sitting in a MM account, it's worth figuring out whether you'd be better off taking a lower yield that's exempt from state and/or federal taxes, or just going for the absolute highest rate. If you're in a state that Vanguard runs a muni MM fund for, that may be worth considering too.

Even interest from the default settlement fund, Vanguard's Federal Money Market Fund, is partly exempt from state taxes. Most years it's been about three quarters of the interest. Whether you can parse it out to this level is state dependent, so your mileage may vary. Here's the 2021 figures:
https://personal.vanguard.com/pdf/USGOIN_01_2022.pdf

Taking your tax rate into account may make a bigger difference than yield chasing.

Best,
Peter

Hi

While filing taxes do I have to look at the above PDF ? or VG 1099-x will have all that information?

Thanks

[increment]

Here's the 2021 figures:
https://personal.vanguard.com/pdf/USGOIN_01_2022.pdf

While filing taxes do I have to look at the above PDF ? or VG 1099-x will have all that information?

You need to look for each year's specific version of the above PDF. The 1099-DIV is a federal form and does not give much help for your state income-tax matters.

[Bones212]

Electron, that chart has some very interesting implications.

A lot of folks are expecting another 0.75% hike in the fed rate next month. For me, I have a 1.4% return with an E*Trade/Morgan Stanley money market account.

I have been trying to put that money into a no-risk to very low risk bond or money market with a better return. My tax rate will likely be in the 24% area for 2022 and Georgia income tax is a flat 4%.

The Vanguard Treasury fund may be a better place for that money. I'm wondering if there are any issues with valuation such is the case right now with municipal bonds and muni funds. Those may have higher rates but nearly all those are yielding a negative return.

Thanks for the great insight!

[Electron]

Currently, Fed MM would have the highest TEY for me of 1.31% if the amount exempt from state income tax is about the same as last year. There has been some speculation that it may not meet the requirement for state income tax exemption in CA this year, so if I don't want to risk this, the next highest TEY is VMRXX at 1.14%, followed by Treasury MM (VUSXX) at 1.07%.

I decided to check the U.S. Government Obligations percentage at the end of March and downloaded all 159 holdings of the fund into a spreadsheet. Fund assets showed a total over $305 billion which didn't look correct with current fund assets at $210.5 billion.

I then noticed a huge $91.833 billion Treasury REPO from the Federal Reserve Bank of New York. The same identical entry was included twice in the listing which I assume is a mistake. With the second entry removed, fund assets showed a total of $213 billion with Repurchase Agreements at $95 billion. The net result was 55.32% USGO and 44.68% in Repurchase Agreements. All figures were very close to the figures reported in the most recent fund report dated February 28, 2022.

This should be good news and the June figures will be available soon. Let's hope the occasional high percentages in Repurchase Agreements are not sustained and that the percentages are below 50% at the end of each quarter. If that turns out to be the case the requirements would be met for California, New York, and Connecticut. However, the high Repurchase Agreement percentages seen at times this year could result in a modestly lower tax exemption compared with last year.

The sharp rises in yield in VMFXX this year have been surprising. I wonder if the fund might have reduced the average maturity ahead of each Fed meeting and then loaded up on higher yielding securities after the rate announcements. That would be easy to plan with the Fed meeting dates known in advance. Interesting thought.

[Electron]

A lot of folks are expecting another 0.75% hike in the fed rate next month. For me, I have a 1.4% return with an E*Trade/Morgan Stanley money market account.

I have been trying to put that money into a no-risk to very low risk bond or money market with a better return. My tax rate will likely be in the 24% area for 2022 and Georgia income tax is a flat 4%.

The Vanguard Treasury fund may be a better place for that money. I'm wondering if there are any issues with valuation such is the case right now with municipal bonds and muni funds.

The E*Trade savings account you mentioned currently has a higher yield than any of the Vanguard Money Market funds. You might want to compare the yields periodically as they continue to move up.

I'd suggest posting your questions about the various bond funds and other alternatives in a separate thread. There are a lot of things to consider and a new topic would be the best way to proceed.

[indexfundfan]

Does anyone know if Vanguard publishes the VMFXX 1-day SEC yield?

[Kevin M]

Does anyone know if Vanguard publishes the VMFXX 1-day SEC yield?

I have never seen that. Only 7-day.

[indexfundfan]

Does anyone know if Vanguard publishes the VMFXX 1-day SEC yield?

I have never seen that. Only 7-day.

Thanks. I'm seeing the 1-day yields leading the 7-day yields for Fidelity's MMFs. That's why I wanted to see how is it like for Vanguard MMFs.

[Samueul]

Forgive my ignorance, is there any difference between keeping money in the VMFXX sweep account vs having VMFXX as an actual fund? If VMFXX is the default sweep for Vanguard, why do they have VMFXX with a minimum of $3k and is it reasonable to keep cash reserves/emergency funds in the sweep account?

Thank you.

[Kevin M]

Forgive my ignorance, is there any difference between keeping money in the VMFXX sweep account vs having VMFXX as an actual fund? If VMFXX is the default sweep for Vanguard, why do they have VMFXX with a minimum of $3k and is it reasonable to keep cash reserves/emergency funds in the sweep account?

Thank you.

No difference.

If you have the old platform mutual fund type account, there is no sweep fund, but you can still buy VMFXX as one of your money market funds.

Yes, right now it's a pretty good place, due to the relatively high SEC yield of 1.36%. If in a taxable account, it could be an even higher taxable-equivalent yield (TEY), depending on if the fund meets the requirements for your state tax exemption (and you pay state income tax). My TEY would be 1.49% in CA if the fund kicks off about the same amount of US government obligation (USGO) income as last year, and meets the quarterly holding requirement of 50% or more in USGO at end of quarter.

Kevin

[Samueul]

Forgive my ignorance, is there any difference between keeping money in the VMFXX sweep account vs having VMFXX as an actual fund? If VMFXX is the default sweep for Vanguard, why do they have VMFXX with a minimum of $3k and is it reasonable to keep cash reserves/emergency funds in the sweep account?

Thank you.

No difference.

If you have the old platform mutual fund type account, there is no sweep fund, but you can still buy VMFXX as one of your money market funds.

Yes, right now it's a pretty good place, due to the relatively high SEC yield of 1.36%. If in a taxable account, it could be an even higher taxable-equivalent yield (TEY), depending on if the fund meets the requirements for your state tax exemption (and you pay state income tax). My TEY would be 1.49% in CA if the fund kicks off about the same amount of US government obligation (USGO) income as last year, and meets the quarterly holding requirement of 50% or more in USGO at end of quarter.

Kevin

Thank you for clearing that up, makes sense.

[Jimsad]

I stopped contributing to my HYSA and started putting it in vanguard federal money market
This is a no brainer decision return wise : correct ? Am I missing anything?

[mouth]

I stopped contributing to my HYSA and started putting it in vanguard federal money market
This is a no brainer decision return wise : correct ? Am I missing anything?

I went a step further and moved 95% of my HYSA monies into VMSXX (Muni MM) because at my 38.8% (35% fed + 3.8% NIIT) marginal Federal rate that makes my TEY on 0.82% circa 1.34% vs. 1.1% of Synchrony Savings.