View Full Version : OT: money market vs high yield savings
Here’s a fun questions: if a high yield savings account like HSBC is offering 1.7% and a money market account like the vanguard VMFXX seems to be offering lower than that, would it be safe to put money in a savings account until there is a higher rate of return? Obviously looking for a safe place to put some money right now before deciding o;an investing strategy.
I might not be reading the vmfxx page correctly.
Ken Robb
05-02-2020, 08:09 PM
Nothing is safer than FDIC insured accounts. The rates offered can vary hugely. Many times the best rates may be offered by on-line banks. I was surprised to discover that my broker at Chas. Schwab could get me better rates on CDs than the same banks would offer me as a direct customer.
I have some $$ in money market accounts and while they are quite safe there is always some risk there but they offer much greater flexibility to get funds in/out in no more than a day whereas a one-year CD will penalize you severely for early withdrawals.
echappist
05-02-2020, 08:42 PM
Nothing is safer than FDIC insured accounts. The rates offered can vary hugely. Many times the best rates may be offered by on-line banks. I was surprised to discover that my broker at Chas. Schwab could get me better rates on CDs than the same banks would offer me as a direct customer.
I have some $$ in money market accounts and while they are quite safe there is always some risk there but they offer much greater flexibility to get funds in/out in no more than a day whereas a one-year CD will penalize you severely for early withdrawals.
Brokered CDs always seem to be better deals than CDs from retail banking. I can't remember if the CDs I have at retail banking outlets have to be in denominations of $1K, but they certainly need to be for brokered CDs.
Speaking of which, I should really look into this.
Also, the Schwab and Fidelity equivalent of VMFXX has an eye-watering expense ratio of 0.4%. I can't remember if the yield takes into account of that.
kppolich
05-02-2020, 09:33 PM
How much are you parking?
Shop around. Lots of checking up to $20,000 with 2.75% interest rates out there. No CD lockdown periods either.
Easy 2% here
https://www.greenstate.org/r2-checking.html
Louis
05-02-2020, 11:01 PM
Unless I'm not remembering properly, didn't some mmkt funds come close to "breaking the buck" just recently? I don't remember the details.
rockdude
05-03-2020, 07:26 AM
How much are you parking?
Shop around. Lots of checking up to $20,000 with 2.75% interest rates out there. No CD lockdown periods either.
Easy 2% here
https://www.greenstate.org/r2-checking.html
Its getting hard to find above 1.7% on MM /saving account above $50,000. Last year, you could get 2.3% pretty easy.
smontanaro
05-03-2020, 08:07 AM
In addition to what others have written, unless you have a large amount of cash to park or are going to park it for a long while, the amount of interest you earn will be minuscule no matter the relative interest rates. I'd just park it where it will be the most convenient when you've decided on an investment strategy.
verticaldoug
05-03-2020, 08:40 AM
Here’s a fun questions: if a high yield savings account like HSBC is offering 1.7% and a money market account like the vanguard VMFXX seems to be offering lower than that, would it be safe to put money in a savings account until there is a higher rate of return? Obviously looking for a safe place to put some money right now before deciding o;an investing strategy.
I might not be reading the vmfxx page correctly.
Indicated yield on Bloomberg for VMFXX is 0.43% and trending lower.
If I look at top holdings, they own a lot of floating rate FHLB paper and other stuff set off 3mo libor. FHLB is like 3mo libor-4bps. Outside on Floating rate stuff, they own a lot of T-bills which have a nice expiring ladder that needs to roll over. This stuff now pays zero. Between T-bills being zero and libor trending lower, the rate will decline over time. Average maturity of holdings is 52 days. So half the positions expire and will be rolled, the other half probably reset on Libor. Probably be around 22 bps by july if not lower. .
HSBC sounds interesting, you just need to read the fine print. It needs to be new money into HSBC, and there are some fees associated with transferring money and closing accounts. 1.7% is really nice rate in my opinion.
Ralph
05-03-2020, 10:03 AM
And remember these yields being quoted are annualized yields. As if it stayed that way for a year. Which it won't. I use Vanguard money market funds also....Both Prime and the settlement fund (Gov't fund). I like he flexibility. And their expense ratio is so low. Also use Charles Schwab....Like their account platform, but I think they have high expense ratios for some of their funds.
It sounds like HSBC or another high yield savings account would at least be a reasonable place to park money for a while. Thanks Paceline!
verticaldoug
05-03-2020, 05:13 PM
It sounds like HSBC or another high yield savings account would at least be a reasonable place to park money for a while. Thanks Paceline!
Read the fine print on the savings account fees because even at 1.7%, 50,000 dollars for a few months maybe only marginally better if you close the account and they charge you $100 to close the account and or other fees.
That is a good point. I took a look and there is a $25 fee for closing the account within 180 days. My guess is that I could leave the minimum $1 amount in for the remainder of the period or just pay that fee. That is only for hsbc so I will be sure to end the fine print at any other institution.
oh boy.....:rolleyes:
be careful chasing yields....do you really want to talk to the FDIC to get your money back if the financial institution you parked it at goes belly up? Odds are it won't....but you never know....
Do a calculation of the amount you want to invest and how much more those couple dozen basis point earn you, and decide if that amount it worth the risk.
As Mark Twain said: "I am more concerned with the return of my money than the return on my money."
verticaldoug
05-03-2020, 06:09 PM
That is a good point. I took a look and there is a $25 fee for closing the account within 180 days. My guess is that I could leave the minimum $1 amount in for the remainder of the period or just pay that fee. That is only for hsbc so I will be sure to end the fine print at any other institution.
Generally, banks don't like to be gamed like this, so somewhere else there is probably more fees or minimums or gates...
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