Vanguard Prime Money Market

[Livefree]

We sold our Rental this week, and I'm looking for somewhere to park the money until I decide where to invest it.


We have money in Ally earning 1.76% and also use Prime Money Market to transfer money from our bank to Vanguard when buying funds.



I think I read it earns 2% Is this FDIC insured?



Also, I saw Fidelity has brokered cd's for 2 years that earn 2.75%

 

[REWahoo]

Is this FDIC insured?

No, it is not.

 

[pb4uski]

Not FDIC insured.... but credit risk is so low as to be infintesimal.... even during the great recession only one MM fund broke the buck and that is because they were stoopid.... also, it was only the second time ever.... very rare.

 

[audreyh1]

We sold our Rental this week, and I'm looking for somewhere to park the money until I decide where to invest it.


We have money in Ally earning 1.76% and also use Prime Money Market to transfer money from our bank to Vanguard when buying funds.



I think I read it earns 2% Is this FDIC insured?



Also, I saw Fidelity has brokered cd's for 2 years that earn 2.75%

Some banks like CIT are offering 1.85% on their high yield savings.

Higher than that - 3 month T-bills are yielding more, around 1.97%, and 6 month T-bills are paying above 2.1%. 1 year CDs are available for 2.3% to 2.5%. CIT is currently offering a 1 year 2.5% CD.

So you can also think about how long you want to park your money.

 

[njhowie]

Also, I saw Fidelity has brokered cd's for 2 years that earn 2.75%

2.8%

 

[Cobra9777]

We like our 15% real estate allocation in the AA (see sig). When we sold a rental house last year, we didn't really want to change that. Just didn't want to own that particular unit anymore. So we split the net proceeds between SCHH and VNQ (two REIT ETFs). I don't like leaving money "parked" except our small 3% cash allocation. Decide your AA and get 'er done.

 

[brewer12345]

To give you an idea of the credit risk in a prime money market, consider the requirements for A1/P1 and A2/P2 rated paper issued by a corporate (one of the things these funds own). The rating agencies require these issuers to maintain at least 100% of the potential amount issued in their commercial paper programs to be backed up by 1+ year irrevocable bank lines. This means that if these issuers were to e downgraded and forced out of the CP market, they would have 100 cents on the dollar or more of standby bank lines ready to fund redemption of the paper. Not FDIC Insured, but pretty bulletproof.


If you insist on FDIC insured, I will soon be opening a money market account with (I am not making this up) Redneck Bank. They pay 2% and are FDIC insured.

 

[camfused]

I trust them enough to be my cash bucket, currently $120K or so

 

[REWahoo]

(I am not making this up) Redneck Bank.

Didn't believe you the first time you mentioned it. But... https://redneck.bank/

 

[brewer12345]

Didn't believe you the first time you mentioned it. But... https://redneck.bank/

Where Bankin's Funner!

 

[Dtail]

Not FDIC insured.... but credit risk is so low as to be infintesimal.... even during the great recession only one MM fund broke the buck and that is because they were stoopid.... also, it was only the second time ever.... very rare.

+1
The difference between a high yield money market account at Fidelity/Vanguard vs. an Internet Bank FDIC account effectively is nothing on the risk side.
I do use Fidelity and Ally for different reasons.

 

[Livefree]

Thanks all for the info..I"ll spread it around, including Prime Money Market.

 

[Another Reader]

Watch out for Fidelity's money market funds! Outrageous ER's of 0.42-0.43 percent. That's a large cut of your yield...

 

[audreyh1]

Not FDIC insured.... but credit risk is so low as to be infintesimal.... even during the great recession only one MM fund broke the buck and that is because they were stoopid.... also, it was only the second time ever.... very rare.

In 2008 the Govt stepped in with emergency measures to back money market funds in order to halt a run on money market funds. It was a very scary time.

The 2008 money market crisis

The 2008 financial crisis triggered a money market crisis that included the failure of the original and oldest U.S. money fund, the $62 billion Reserve Primary Fund, which broke the one dollar net asset value mark (known as breaking the buck) in September 2008. An ensuing net redemption of prime money market funds[note 1] by both institutional and retail investors was counterbalanced by an inflow of funds to treasury/government money funds. Government action during the crisis included the formation of emergency measures designed to support and stabilize money markets. Subsequently, money market fund reform measures were instituted in 2010, with a second round of reforms added in 2014.

https://www.bogleheads.org/wiki/The_2008_money_market_crisis

 

[nwsteve]

Watch out for Fidelity's money market funds! Outrageous ER's of 0.42-0.43 percent. That's a large cut of your yield...

7- Day Yield of 1.87% is net of expenses

"The current yield reflects the current earnings of the fund, while the total return refers to a specific past holding period. The 7-Day Yield is the average income return over the previous seven days, assuming the rate stays the same for one year. It is the Fund's total income net of expenses[ (my bold) /U], divided by the total number of outstanding shares and includes any applicable waiver or reimbursement."

 

[Another Reader]

7- Day Yield of 1.87% is net of expenses

"The current yield reflects the current earnings of the fund, while the total return refers to a specific past holding period. The 7-Day Yield is the average income return over the previous seven days, assuming the rate stays the same for one year. It is the Fund's total income net of expenses[ (my bold) /U], divided by the total number of outstanding shares and includes any applicable waiver or reimbursement."

Fidelity Retail Prime MM ER's:

SPRXX has an ER of 0.42 Percent, net yield 1.86 percent. Gross yield 2.28 percent. 0.42/2.28 = 18.4 percent
FZDXX has an ER of 0.37 percent, net yield 1.98 Percent. Gross yield 2.35 percent. 0.37/2.35 = 15.7 percent

My accounts are in Fidelity federal funds MM's. For example,

SPAXX has an ER of 0.42 percent, net yield 1.54 percent. Gross yield 1.96 percent. 0.42/1.96 =21.4 percent

Vanguard Prime MM

VMMXX has an ER of 0.16 percent, net yield 2.04 percent. Gross yield, 2.20 percent. 0.16/2.20 = 7.3 percent

Vanguard Federal MM

VMFXX has an ER of 0.11 percent, net yield 1.84 percent. Gross yield, 1.95 percent. 0.11/1.95 = 5.6 percent

The percentages are better than when I last calculated them, but Fidelity's ER's on MM funds take a big chunk of your yield, especially when compared to Vanguard.

 

[Dtail]

Fidelity Retail Prime MM ER's:

SPRXX has an ER of 0.42 Percent, net yield 1.86 percent. Gross yield 2.28 percent. 0.42/2.28 = 18.4 percent
FZDXX has an ER of 0.37 percent, net yield 1.98 Percent. Gross yield 2.35 percent. 0.37/2.35 = 15.7 percent

My accounts are in Fidelity federal funds MM's. For example,

SPAXX has an ER of 0.42 percent, net yield 1.54 percent. Gross yield 1.96 percent. 0.42/1.96 =21.4 percent

Vanguard Prime MM

VMMXX has an ER of 0.16 percent, net yield 2.04 percent. Gross yield, 2.20 percent. 0.16/2.20 = 7.3 percent

Vanguard Federal MM

VMFXX has an ER of 0.11 percent, net yield 1.84 percent. Gross yield, 1.95 percent. 0.11/1.95 = 5.6 percent

The percentages are better than when I last calculated them, but Fidelity's ER's on MM funds take a big chunk of your yield, especially when compared to Vanguard.

I have FZDXX which is net 1.98% as you stated. Does the gross yield really matter with MM funds? For example, isn't the apples to apples comparison with Ally Bank 1.98 vs. 1.75?
I do realize that Vanguard is net higher than Fidelity, but I have all my investments at Fidelity.
I see the ER expenses matter with mutual funds etc, as the performance fluctuates, but in the end doesn't just the net matter with MM's?
Maybe I am missing something....

 

[audreyh1]

I have FZDXX which is net 1.98% as you stated. Does the gross yield really matter with MM funds? For example, isn't the apples to apples comparison with Ally Bank 1.98 vs. 1.75?
I do realize that Vanguard is net higher than Fidelity, but I have all my investments at Fidelity.
I see the ER expenses matter with mutual funds etc, as the performance fluctuates, but in the end doesn't just the net matter with MM's?
Maybe I am missing something....

Another Reader often takes the opportunity to warn people that Fidelity MM funds have high expense ratios compared to say Vanguard. Of course this difference is simply reflected in the yields quoted when comparing Fidelity MM funds to Vanguard MM funds.

The 0.26% difference in ER between SPRXX(ER of 0.42%) and VMMXX (ER of 0.16%) is mostly reflected in their respective yields of 1.86% versus 2.04%. The fact that the Fidelity makes up about 8 basis points of the difference in expense ratios as the yield difference is only 0.18% perhaps leads him/her to think that the Fidelity Prime MM is taking on more risk.

It appears to be a complaint about Fidelity MM funds having high expense ratios as compared to their yields in general.

Some of us don’t have Vanguard Brokerage Accounts and are instead comparing Fidelity MM yields and risks against high yield savings accounts and maybe 4 week T-bills.

Note that CDs and high yield savings accounts aren’t required to publish expense ratios, so we don’t know what they are. All we can do is compare yields. MM funds, because they are mutual funds, are required to publish ERs, even though they target an unchanging $1 share price.

 

[pb4uski]

To give you an idea of the credit risk in a prime money market, consider the requirements for A1/P1 and A2/P2 rated paper issued by a corporate (one of the things these funds own). The rating agencies require these issuers to maintain at least 100% of the potential amount issued in their commercial paper programs to be backed up by 1+ year irrevocable bank lines. This means that if these issuers were to e downgraded and forced out of the CP market, they would have 100 cents on the dollar or more of standby bank lines ready to fund redemption of the paper. Not FDIC Insured, but pretty bulletproof.


If you insist on FDIC insured, I will soon be opening a money market account with (I am not making this up) Redneck Bank. They pay 2% and are FDIC insured.

Just curious brewer... why Redneck Bank when Vanguard Prime MM is paying the same rate?

 

[pb4uski]

In 2008 the Govt stepped in with emergency measures to back money market funds in order to halt a run on money market funds. It was a very scary time.

https://www.bogleheads.org/wiki/The_2008_money_market_crisis

That's my point though.... with the money market regulatory reforms enacted in 2010 and 2014, MM funds are essentially the same as FDIC insured from a credit risk perspective.

 

[audreyh1]

That's my point though.... with the money market regulatory reforms enacted in 2010 and 2014, MM funds are essentially the same as FDIC insured from a credit risk perspective.

Perhaps, but I don’t see it that way, as I know that if a bank fails how the FDIC/NCUA backstop works because there is direct routine (not emergency) government intervention and it’s been used successfully decade after decade, even through some severe financial crises.

We don’t really know how the newly reformed MM funds and investors will behave under extreme stress. It should be way better, but is as yet untested.

Just curious brewer... why Redneck Bank when Vanguard Prime MM is paying the same rate?

He was simply explaining the options if FDIC insurance was a requirement.

 

[pb4uski]

So you see significantly more credit risk in a MM fund vs an FDIC insured account after reading post #7?

 

[audreyh1]

So you see significantly more credit risk in a MM fund vs an FDIC insured account after reading post #7?

I simply don't consider them equivalent.

 

[l2ridehd]

Even a few basis point difference in MM funds is something to note and take advantage of, so ER are very important. Vanguard has the lowest ER of all of them. Even Schwab is lower then Fidelity. Why you ask? Because the yield on MM moves very quickly as noted by the 7 day yield. So vanguard with the lowest ER will follow the interest rate rise slightly ahead of all other MM funds and has so far always stayed that way. Also they are the only fund company to continue to lower cost, others do but only because they have to follow Vanguard.

I do maintain MM funds at Vanguard and Schwab. Schwab because their investor checking account provides an ATM card that works in any ATM any where in the world with zero fee's. And moving money from the MM to checking is instant on the web site. And all ATM fee's are reimbursed.

However if you are chasing yield there are better options then most MM funds. AT&T stock remains close to it's 52 week low with a yield of 6.12% with a PE under 20 so IMHO a very low risk and a good upside potential in stock price. I wouldn't put all my cash funds there, but putting 1/3 of them there moves your total yield up significantly with low risk and upside potential. I have been a buyer at 30 to 32 and a seller at 38 to 40 for the past 8 years. It has been a very profitable ride to the point I am plus if my current holding of the stock falls to zero. Again in total it a very small % of total holdings, about 1% as I try to keep 3% in cash. So 2% in MM funds at Schwab and Vanguard and 1% in AT&T stock. I also use a stop loss order at 30 for the stock but it has never hit since I have owned it. I know all the purests will consider owning stock and counting it as cash is a huge no no, but it has worked well for me.

 

[Dtail]

Another Reader often takes the opportunity to warn people that Fidelity MM funds have high expense ratios compared to say Vanguard. Of course this difference is simply reflected in the yields quoted when comparing Fidelity MM funds to Vanguard MM funds.

The 0.26% difference in ER between SPRXX(ER of 0.42%) and VMMXX (ER of 0.16%) is mostly reflected in their respective yields of 1.86% versus 2.04%. The fact that the Fidelity makes up about 8 basis points of the difference in expense ratios as the yield difference is only 0.18% perhaps leads him/her to think that the Fidelity Prime MM is taking on more risk.

It appears to be a complaint about Fidelity MM funds having high expense ratios as compared to their yields in general.

Some of us don’t have Vanguard Brokerage Accounts and are instead comparing Fidelity MM yields and risks against high yield savings accounts and maybe 4 week T-bills.

Note that CDs and high yield savings accounts aren’t required to publish expense ratios, so we don’t know what they are. All we can do is compare yields. MM funds, because they are mutual funds, are required to publish ERs, even though they target an unchanging $1 share price.

+1 Exactly.