Stupid questions on mechanics of money market account for emergency fund, and also Treasury Direct

[N00bWhale]

I’m considering moving most of my emergency fund to a money market account and have a few question on how does it actually works please.

1. I use Chase as my checking account, so would I open an investment account at Chase, and then purchase a money fund there?
2. If I do want to liquidate it for a large purchase, how quickly can I get the money, can I quickly transfer the money from the investment account back to checking?
3. Since I believe this is an investment account, would I get hit with any type of capital gains (or other) taxes for taking money out of it?
--------------

Part two. I also have a Treasury Direct account and have some iBonds that I like for their flexibility, because after the one year lock up, I can liquidate them at any time and get all the money in 1-2 days. I think it is time for me to liquidate the iBonds because the rate has gone down (I bought them at 0% iBond rate when inflation was high). Might there any type of treasury that might fit my need, where I can sell it quickly if needed? I’m okay with an initial lockup, like the iBonds had, I could move the money in over time.

Thank you very much.

[niagara_guy]

I keep most of my money at Fidelity and I have a link to my credit union so I can move money (I believe it's called ACH, takes 2-3 days) when I need to. I believe Fidelity (Schwab and Vanguard as well) have much better options for investments than banks/credit unions do, so I only keep a small amount at my credit union.

For any taxable account (not a retirement account like an IRA) you will pay taxes when you sell an investment that has gains.

[RickBoglehead]

Money market funds have a value of $1 per share. They don't have capital losses or gains. Each day they earn interest, which is called a dividend, paid monthly usually. You pay taxes in that interest as dividend income, not taxable gains, regardless of whether you withdraw funds or not. Most brokerage would transfer the funds via ACH in 2 business days. Sell Monday, in account Wednesday. Or you could wire funds and have it Tuesday.

[ehh]

1. I use Chase as my checking account, so would I open an investment account at Chase, and then purchase a money fund there?

Not necessarily. Open a brokerage account at, for example, Vanguard and link your checking account to your Vanguard account. Transfer money back and forth via ACH.

2. If I do want to liquidate it for a large purchase, how quickly can I get the money, can I quickly transfer the money from the investment account back to checking?

A day or two via ACH. Be aware some have reported Vanguard refuses to allow an online initiated ACH out of a taxable brokerage account, even back to the checking account from which the funds originated, for the first year after the brokerage account was opened. It is not clear to me whether this is a general (anti money laundering) policy or whether there are unusual circumstances involved. Run an experiment before you need the funds rapidly. If you use paper checks, you can establish check writing against a Vanguard Money Market Fund and then write checks for greater than $250.

3. Since I believe this is an investment account, would I get hit with any type of capital gains (or other) taxes for taking money out of it?

As long as you only invest in money market funds, no. The value of a share of a money market fund is fixed at one dollar.

[ehh]

Part two. I also have a Treasury Direct account and have some iBonds that I like for their flexibility, because after the one year lock up, I can liquidate them at any time and get all the money in 1-2 days. I think it is time for me to liquidate the iBonds because the rate has gone down (I bought them at 0% iBond rate when inflation was high). Might there any type of treasury that might fit my need, where I can sell it quickly if needed? I’m okay with an initial lockup, like the iBonds had, I could move the money in over time.

Well, I think I Bonds fixed rate is currently 1.3%. So, if you like, I Bonds, that is an option.

[retired@50]

I’m considering moving most of my emergency fund to a money market account and have a few question on how does it actually works please.

1. I use Chase as my checking account, so would I open an investment account at Chase, and then purchase a money fund there?
2. If I do want to liquidate it for a large purchase, how quickly can I get the money, can I quickly transfer the money from the investment account back to checking?
3. Since I believe this is an investment account, would I get hit with any type of capital gains (or other) taxes for taking money out of it?
--------------

Part two. I also have a Treasury Direct account and have some iBonds that I like for their flexibility, because after the one year lock up, I can liquidate them at any time and get all the money in 1-2 days. I think it is time for me to liquidate the iBonds because the rate has gone down (I bought them at 0% iBond rate when inflation was high). Might there any type of treasury that might fit my need, where I can sell it quickly if needed? I’m okay with an initial lockup, like the iBonds had, I could move the money in over time.

Thank you very much.

1. You might be able to do this all at Chase, but you'll probably have more options at someplace like Vanguard, etc.

Vanguard has the best interest rates on money market funds out of the big firms (Vanguard, Fidelity, Schwab, etc.). I'm currently earning 5.25% on cash at Vanguard.

2. You could link your Chase checking account to your new Vanguard account and move money back and forth when needed in a day or two.

3. Money market funds don't really have "gains" they earn interest, which are sometimes called dividends, but regardless of how it's labeled, you'll owe income tax on the interest earned. There will be a 1099 statement at tax time which you can use to help with your income tax return.

If you try to do a "money fund" at Treasury Direct, you'll soon realize that you cannot sell T-bills in the secondary market on a moment's notice. There, you'd have to wait for a 4 week T-bill to mature before you could get your hands on the money. Somewhat limiting in my view.

Regards,

[rkhusky]

Note that there is a significant difference between a bank’s money market account and a brokerage’s money market fund.

[Sandtrap]

I’m considering moving most of my emergency fund to a money market account and have a few question on how does it actually works please.

1. I use Chase as my checking account, so would I open an investment account at Chase, and then purchase a money fund there?
2. If I do want to liquidate it for a large purchase, how quickly can I get the money, can I quickly transfer the money from the investment account back to checking?
3. Since I believe this is an investment account, would I get hit with any type of capital gains (or other) taxes for taking money out of it?
--------------

Part two. I also have a Treasury Direct account and have some iBonds that I like for their flexibility, because after the one year lock up, I can liquidate them at any time and get all the money in 1-2 days. I think it is time for me to liquidate the iBonds because the rate has gone down (I bought them at 0% iBond rate when inflation was high). Might there any type of treasury that might fit my need, where I can sell it quickly if needed? I’m okay with an initial lockup, like the iBonds had, I could move the money in over time.

Thank you very much.

This might be helpful for you:
Fidelity fixed rate chart, current.
https://fixedincome.fidelity.com/ftgw/f ... hest-yield

j

[Badgered]

Vanguard has the best interest rates on money market funds out of the big firms (Vanguard, Fidelity, Schwab, etc.). I'm currently earning 5.25% on cash at Vanguard.

Just a note ... Allspring Money Market (WMPXX) at E*Trade is currently at 5.37%

[retired@50]

Vanguard has the best interest rates on money market funds out of the big firms (Vanguard, Fidelity, Schwab, etc.). I'm currently earning 5.25% on cash at Vanguard.

Just a note ... Allspring Money Market (WMPXX) at E*Trade is currently at 5.37%

Okay, second best...

Curious... When I go to etrade.com and search for wmpxx nothing comes back...?

I've never heard of Allspring, so I think I'll stick with Vanguard.

Regards,

[Badgered]

Okay, second best...

Curious... When I go to etrade.com and search for wmpxx nothing comes back...?

I've never heard of Allspring, so I think I'll stick with Vanguard.

Regards,

Not sure why it's not showing up for you? I hold it in my taxable account at ETrade.
It's fairly large ... $35 billion net assets

Details:
7 Day Current Yield - 5.37
Annual Total Return - 5.45
Weighted Average Maturity - 34
Net Expense Ratio - 0.20%
Gross Expense Ratio - 0.27%
Total Net Assets - $35.0B

[Turbo29]

I have a checking account at Chase and I also opened the self-directed investment account where I hold VUSXX. During banking hours transfers into the money market account can be done the same day and I have seen it written, perhaps on this site if I remember correctly, that if you put a sell order in for the money market fund during stock market hours, you can transfer it into your checking account later that evening.

[RetiredAL]

There is a general under-appreciation here of Bank/Brokerage combinations. For many, this may make sense, a result of the banking brokerage integration.

Besides Schwab, my Dad had a brokerage account with Wells Fargo, originally with Wells Fargo Advisors, later as a Wells Trade account. Later, these became Estate Accounts. Money moves from a Fund, at worst, were over-night, and often an hr or two if it was a Money Market Fund. When Funds were already in their "core/settlement" holding,the move was instantaneous. ETF trades immediately went to "core" so they could immediately be moved. Several fine Money Markets such VMRXX traded on their platform with with no entry fences or costs.

[sycamore]

Okay, second best...

Curious... When I go to etrade.com and search for wmpxx nothing comes back...?

I've never heard of Allspring, so I think I'll stick with Vanguard.

Regards,

Not sure why it's not showing up for you? I hold it in my taxable account at ETrade.
It's fairly large ... $35 billion net assets

Details:
7 Day Current Yield - 5.37
Annual Total Return - 5.45
Weighted Average Maturity - 34
Net Expense Ratio - 0.20%
Gross Expense Ratio - 0.27%
Total Net Assets - $35.0B

Also, a good site for comparing money market funds is the very useful https://moneymarket.fun/.

The Allspring WMPXX is at the top of the list.

There is a set of brokerage icons for each fund; click on an icon to navigate to the web page of the fund at that brokerage. In this case, the link is https://www.etrade.wallst.com/v1/stocks ... mbol=WMPXX.
Not sure why it wouldn't show up otherwise.

[telemark]

Some institutions support expedited ACH. I have a savings account at American Express bank, and if I initiate a transfer in the morning and check the right box, it will be in my checking account at a different bank by the end of the day. Worth looking into if you're shopping around.

[bd7]

I’m considering moving most of my emergency fund to a money market account and have a few question on how does it actually works please.

1. I use Chase as my checking account, so would I open an investment account at Chase, and then purchase a money fund there?
2. If I do want to liquidate it for a large purchase, how quickly can I get the money, can I quickly transfer the money from the investment account back to checking?
3. Since I believe this is an investment account, would I get hit with any type of capital gains (or other) taxes for taking money out of it?
--------------

Part two. I also have a Treasury Direct account and have some iBonds that I like for their flexibility, because after the one year lock up, I can liquidate them at any time and get all the money in 1-2 days. I think it is time for me to liquidate the iBonds because the rate has gone down (I bought them at 0% iBond rate when inflation was high). Might there any type of treasury that might fit my need, where I can sell it quickly if needed? I’m okay with an initial lockup, like the iBonds had, I could move the money in over time.

1. Yes, you can open an investment account right at Chase and then purchase MMFs, including Vanguard funds, directly there.

2. Maybe three days depending on your timing? I haven't actually tried it yet with Chase so it may actually be faster. It may vary by fund and so on. AFAIK, they don't have auto-liquidating core funds like Fidelity.

3. You'll get a statement each year telling you how much taxable interest you had. No capital gains on MMFs.

Depending on how much you have in I-bonds, consider rolling them over to new ones that have a 1.3% fixed rate. That 1.3% doesn't sound impressive, but it actually is a fairly good long-term deal.

[tonyclifton]

Note that there is a significant difference between a bank’s money market account and a brokerage’s money market fund.

Correct and good point. The terminology sounds similar: money market checking account and money market fund. But these are very different. I do not have the need to write checks immediately out of my Schwab money market fund. When I need the cash, I sell the fund and wait for it to settle then transfer to my checking account. I believe the Vanguard money market funds held at Vanguard allow check writing (which is essentially an automatic sell of the money market fund).

[slippinsurlies]

Money market funds have a value of $1 per share. They don't have capital losses or gains. Each day they earn interest, which is called a dividend, paid monthly usually. You pay taxes in that interest as dividend income, not taxable gains, regardless of whether you withdraw funds or not. Most brokerage would transfer the funds via ACH in 2 business days. Sell Monday, in account Wednesday. Or you could wire funds and have it Tuesday.

Thanks for this. I was getting ready to ask the same question over in my own thread, but this solves it. It was getting confusing since different places don’t always clearly differentiate between interest, dividends, capital gains, mutual funds, and money market funds. Even the SPAXX prospectus didn’t make it clear.

OP, this page from Fideility seems to corroborate what folks here are saying about the tax implications for a money market mutual fund. Pay taxes on interest, just like you would on a high yield savings account. Don’t pay long term or short term capital gains taxes on interest.

[N00bWhale]

Thanks everyone, you all have been very helpful. To close to loop on this, I *think* I’m going to open a Chase self directed account. I’m sure Fidelity is better overall, but I’m planning on just buying maybe Vanguard Federal Money Market Fund (VMFXX), so I think Chase will be good enough for this, and I'm expecting the transfer times to be faster.

I’ll have to test it to see how quickly I can move money back out. I found this thread:
https://www.reddit.com/r/Chase/comments ... ds_from_a/

that says:
1 day selling time for mutual funds as you know.
Once it’s in cash it transfers the same day instantly.
Chase recently changed their policy so you have to transfer money out of the brokerage within market hours or it will transfer next day