VMFXX safety since not FDIC insured

[Earl E Retyre]

I just had a very large CD mature and want to keep it liquid for the next year for several reasons. Out of all my cash accounts, Vanguard's VMFXX currently pays the highest yield at 4.23%. I know it is not FDIC insured but it says it invests primarily in:

"cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered by Vanguard."

So, my question is, do you think it is safe to park > $300k in VMFXX? Alternatively, I have a synchrony bank HYS account that is FDIC insured at 4%. I do not want to hassle opening up an account at a new bank (and my Fidelity FDRXX is only at 4.03%) so I believe those are my only options. Thoughts?

 

[TickTock]

I think it's safe.

You could also do a short ladder of USTs, say 1 - 4 months. Or put half of it in 1 month USTs and put the rest in synchrony bank.

 

[rk911]

For me it would depend on what % $300,000 is of your networh. 1%...no sweat, 10%...now i'm concerned, more than 10%...time to split up that cash.

 

[jazz4cash]

It is safe but I would duversify. The difference in rates is trivial and it changes every day. As to what you posted if you are concerned 23% to get FDIC seems like good value. Its win win.

 

[Closet_Gamer]

Is it safe? Probably but not guaranteed.

Things will have to get mighty weird before a money market fund “breaks the buck.” Even during the insanity of 2008, only one fund did it and that was a very minor loss.

If things start to get 2008 level weird you can always sell those funds on 1 day notice and have them into an FDIC insured account a day after that. So, if the government starts to talk about nationalizing banks or taking over AIG, move the money.

YMMV

 

[NomDeER]

If we get to the point where VMFXX isn't safe, then would FDIC be safe either, and would individual treasuries be safe, either? I suppose it depends on the reasons VMFXX got in trouble. But, if VMFXX gets in trouble, I'll probably be in trouble one way or another for a variety of reasons.

 

[Dtail]

Just as another option, Fidelity has an FZDXX MM account which is currently at 4.15%.
One typically needs 100k to open it up, but you don't need to keep 100k in it.

 

[Dtail]

It is also extremely rare for a MM fund to "break the buck" or effectively fail.

 

[NomDeER]

Just as another option, Fidelity has an FZDXX MM account which is currently at 4.15%.

Is there a reason why this money market account would be safer than Vanguard's?

 

[mrfeh]

So, my question is, do you think it is safe to park > $300k in VMFXX?

Yes.

 

[Surewhitey]

Just as another option, Fidelity has an FZDXX MM account which is currently at 4.15%.
One typically needs 100k to open it up, but you don't need to keep 100k in it.

So if you open this up with the $100k & then remove half... Can you then transfer whatever amount you want (in & out) even without the $100k minimum?

 

[Dtail]

Is there a reason why this money market account would be safer than Vanguard's?

Not any safer than Vanguard. Just another choice if one is partial to Fidelity.

 

[Dtail]

So if you open this up with the $100k & then remove half... Can you then transfer whatever amount you want (in & out) even without the $100k minimum?

Yes. Example open with 100k, take out 50k then put back 20k. Still receive the same rate (100k rate effectively) whether at 70k or 100k.

 

[mrfeh]

Just as another option, Fidelity has an FZDXX MM account which is currently at 4.15%.
One typically needs 100k to open it up, but you don't need to keep 100k in it.

OP - take state taxes into account when you make your decision. FZDXX has a very small percentage in government obligations.

And, of course, anything in a HYSA will be taxed as regular income.

 

[MichaelH13]

I just had a very large CD mature and want to keep it liquid for the next year for several reasons. Out of all my cash accounts, Vanguard's VMFXX currently pays the highest yield at 4.23%. I know it is not FDIC insured but it says it invests primarily in:

"cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered by Vanguard."

So, my question is, do you think it is safe to park > $300k in VMFXX? Alternatively, I have a synchrony bank HYS account that is FDIC insured at 4%. I do not want to hassle opening up an account at a new bank (and my Fidelity FDRXX is only at 4.03%) so I believe those are my only options. Thoughts?

You're thinking it through wisely. VMFXX is about as conservative as a money market fund gets, and while it's not FDIC insured, it’s backed by U.S. government securities and has a solid track record. That said, if absolute principal protection is your top concern, keeping the bulk in the FDIC-insured Synchrony account makes sense—even at a slightly lower yield.

Personally, I’d probably split it—maybe $200K in VMFXX for the higher yield and $100K in the HYS account to keep some fully insured. It’s a nice balance between safety and return, without the hassle of opening anything new.

 

[Christopher13]

I just had a very large CD mature and want to keep it liquid for the next year for several reasons. Out of all my cash accounts, Vanguard's VMFXX currently pays the highest yield at 4.23%. I know it is not FDIC insured but it says it invests primarily in:

"cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered by Vanguard."

So, my question is, do you think it is safe to park > $300k in VMFXX? Alternatively, I have a synchrony bank HYS account that is FDIC insured at 4%. I do not want to hassle opening up an account at a new bank (and my Fidelity FDRXX is only at 4.03%) so I believe those are my only options. Thoughts?

VMFXX is about as safe as it gets without FDIC insurance, and for a one-year hold, I'd personally be fine parking $300k there. That said, splitting it with your Synchrony account could give you peace of mind while still keeping a solid yield. No need to overcomplicate it if you’re happy with your current setup.

 

[Graybeard]

I have 3 CDs coming due over the next 6 weeks and I may keep $625k in VMFXX in my IRA. You did not mention whether this is in a taxable account and if so the interest may be taxable by the state in which case VUSXX is treasuries and will be state tax free this year.

 

[joesxm3]

If you are worrying about FDIC you may want to investigate how companies like Fidelity actually hold what you think you own in your account including T-Bills, stocks and maybe brokered CDs.

These are registered in Fidelity's name and held for Fidelity in a group of entities called DTC or DTCC etc.

What you have is "beneficial ownership" which is not the same as "ownership rights". In the event of a very major financial meltdown you are low on the pecking order.

To have true ownership rights you have to hold your stocks via " direct registration" or your T-Bills at Treasury Direct.

Tin foil hat territory, but just saying . . .

 

[Koolau]

I just had a very large CD mature and want to keep it liquid for the next year for several reasons. Out of all my cash accounts, Vanguard's VMFXX currently pays the highest yield at 4.23%. I know it is not FDIC insured but it says it invests primarily in:

"cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered by Vanguard."

So, my question is, do you think it is safe to park > $300k in VMFXX? Alternatively, I have a synchrony bank HYS account that is FDIC insured at 4%. I do not want to hassle opening up an account at a new bank (and my Fidelity FDRXX is only at 4.03%) so I believe those are my only options. Thoughts?

I'd not worry too much about it especially if $300K isn't a huge % of your AA.

 

[Mark1]

I won't worry about putting it all in VMFXX. Can you crash and burn? Absolutely, but I believe in that scenario we're all going down with you, so at least you won't be alone.

 

[Al18]

Barclays Tiered Savings is another option https://banking.barclaysus.com/tiered-savings

 

[Chuckanut]

Why not build a short term CD ladder of about 3-6 months that has part of the total amount maturing each month and rolling over to a new CD of equal length to the mature one. If you need the money, make sure the CD does not rollover.

 

[Rianne]

Brings the question, are CDs safe? AI says banks are typically secure in a high interest environment.

 

[Chuckanut]

Brings the question, are CDs safe? AI says banks are typically secure in a high interest environment.

His $300,000 would have to be split between two accounts, preferably at separate banks, to be completely safe.

 

[mrfeh]

Why not build a short term CD ladder of about 3-6 months that has part of the total amount maturing each month and rolling over to a new CD of equal length to the mature one. If you need the money, make sure the CD does not rollover.

I don't know what short term CD rates are these days, but another option would be to roll 4 week treasuries.