Figuring out where to park "backup" emergency fund

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Rocinante Rider
Posts: 564
Joined: Fri Aug 19, 2022 12:52 pm

Re: Figuring out where to park "backup" emergency fund

Post by Rocinante Rider »

ladycat wrote: Mon Jun 10, 2024 11:18 am I don't have a Vanguard account, so I can't comment or compare how it's handled there.
Vanguard's settlement fund is VMFXX, a federal money market, with a current 7 day yield of 5.27% and expense ratio of 0.11%. Sale proceeds or dividends from other holdings that are not set to reinvest, automatically get credited to VMFXX. We also use VUSXX in our taxable accounts, which currently also has a 7 day yield of 5.27% and a slightly better expense ratio of 0.09%. VUSXX typically has even less of it's dividends subject to state taxes than VMFXX, but otherwise the differences between VMFXX and VUSXX are negligible. Check-writing is a available with either, with a minimum of $250/check. It's easy to move funds between the two money markets or by ACH to a bank saving or checking account. Fidelity money markets have expense ratios several times greater than Vanguard, which lowers the Fidelity yields accordingly. For example, VUSXX would currently have about $330 per year in extra yield for every 100k invested compared to Fidelity MM.
Irene
Posts: 23
Joined: Sun Jun 09, 2024 9:39 pm

Re: Figuring out where to park "backup" emergency fund

Post by Irene »

I think the I bonds idea makes sense, and if greater liquidity is needed, just buy them more slowly rather than putting 15K in at once and tying it all up for a year. The three-month interest penalty doesn't loom large to me if you need some of the money sooner than five years: it's a way better deal than putting an emergency expense on a credit card.
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