Author Topic: Ally money market account VS Vanguard Prime money market  (Read 2199 times)

JSMustachian

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Ally money market account VS Vanguard Prime money market
« on: December 12, 2018, 10:21:38 AM »
Is there any advantage to putting emergency fund money with an online money market account like Ally versus just putting the money in a Vanguard money market fund?

VMMXX pays out slightly higher interest and it would allow me to eliminate the need of having an extra account. Any reason why I should not do this? I know the interest difference is negligible. Just looking to simplify things.

Ally 2.0%
VMMXX 2.33%-0.16%(expense ratio)= 2.17%


dandarc

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Re: Ally money market account VS Vanguard Prime money market
« Reply #1 on: December 12, 2018, 10:26:19 AM »
The downside I can think of off-hand would be any kind of delay in withdrawing funds if you need them, but I can't imagine that would be more than 2-3 business days, and Ally probably isn't much better.

Might run this by the wife - could close a couple of accounts that we don't really use except to park the emergency fund. Two fewer passwords to remember.

FIREball567

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Re: Ally money market account VS Vanguard Prime money market
« Reply #2 on: December 12, 2018, 10:35:54 AM »
Is there any advantage to putting emergency fund money with an online money market account like Ally versus just putting the money in a Vanguard money market fund?

VMMXX pays out slightly higher interest and it would allow me to eliminate the need of having an extra account. Any reason why I should not do this? I know the interest difference is negligible. Just looking to simplify things.

Ally 2.0%
VMMXX 2.33%-0.16%(expense ratio)= 2.17%

I have 2 places I use. Purepoint which is 2.15% and Heritage Bank which offers 3.34% up to $25k.


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terran

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Re: Ally money market account VS Vanguard Prime money market
« Reply #3 on: December 12, 2018, 10:36:44 AM »
VMMXX is not FDIC insured while Ally accounts are, so there is some small risk because of that. I wouldn't worry about it with Vanguard though.

appleshampooid

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Re: Ally money market account VS Vanguard Prime money market
« Reply #4 on: December 12, 2018, 10:38:00 AM »
I recently moved our EF from Barclays to VMMXX. Barclays was around 2%, VMMXX is a bit more, but yeah the big win was eliminating one account. I have way too many accounts. Have been streamlining this year.

A big *benefit* is ease of investing those funds if and when you want to. No transfer from your bank to Vanguard, just move the money over into your desired mutual fund position(s).

Indexer

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Re: Ally money market account VS Vanguard Prime money market
« Reply #5 on: December 15, 2018, 08:00:37 AM »
Ally 2.0%
VMMXX 2.33%-0.16%(expense ratio)= 2.17%


The 2.33% is NET of the expense ratio.  You don't need to do any further math. It's 2.33%.

Now it's up to 2.34% which is 2.37% APR. APR takes into account compounding and it's what the banks normally quote their yields in so APR should be used for apples to apples comparison.


VMMXX is not FDIC insured while Ally accounts are, so there is some small risk because of that. I wouldn't worry about it with Vanguard though.


Let's first ask why a bank has FDIC. The bank is loaning out other people's money for the benefit of the bank. If those loans don't work out the bank could fail, and your money is at risk. This creates a problem, and FDIC helps mitigate that problem.

Mutual funds aren't doing that. They are pooling the assets of potentially millions of investors and investing it directly on their behalf. You bear the risk of the underlying investments, not Vanguard's solvency. With the Prime mmkt they are investing in short term US treasuries, CDs, foreign government bonds, etc. Your risk isn't with Vanguard, it's the risk that the underlying assets fail or don't pay out what they are supposed to. Given that these are very short term highly liquid highly secure assets it's highly unlikely that the fund would pay out less than it promised. The only time I know of any money market failing to fully pay out(referred to as breaking the buck) was when Lehman Brother's failed. Even in that extreme event, the money market that failed(which had some Lehman commercial paper), saw it's price fall to 0.97 on the dollar. For a fund like that to go to zero, we have much bigger problems(the end of the world economy) and FDIC would probably also be gone.

If you're worried about it, just use the Federal Money Market instead. It's paying 2.26% APR, and it invests 81.7% in short term government debts and 18.3% in repurchase agreements(which are backed by government securities).

Short term government debts VS FDIC:  Both are backed by the full faith and credit of the US government.

terran

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Re: Ally money market account VS Vanguard Prime money market
« Reply #6 on: December 15, 2018, 09:01:59 AM »
VMMXX is not FDIC insured while Ally accounts are, so there is some small risk because of that. I wouldn't worry about it with Vanguard though.


Let's first ask why a bank has FDIC. The bank is loaning out other people's money for the benefit of the bank. If those loans don't work out the bank could fail, and your money is at risk. This creates a problem, and FDIC helps mitigate that problem.

Mutual funds aren't doing that. They are pooling the assets of potentially millions of investors and investing it directly on their behalf. You bear the risk of the underlying investments, not Vanguard's solvency. With the Prime mmkt they are investing in short term US treasuries, CDs, foreign government bonds, etc. Your risk isn't with Vanguard, it's the risk that the underlying assets fail or don't pay out what they are supposed to. Given that these are very short term highly liquid highly secure assets it's highly unlikely that the fund would pay out less than it promised. The only time I know of any money market failing to fully pay out(referred to as breaking the buck) was when Lehman Brother's failed. Even in that extreme event, the money market that failed(which had some Lehman commercial paper), saw it's price fall to 0.97 on the dollar. For a fund like that to go to zero, we have much bigger problems(the end of the world economy) and FDIC would probably also be gone.

If you're worried about it, just use the Federal Money Market instead. It's paying 2.26% APR, and it invests 81.7% in short term government debts and 18.3% in repurchase agreements(which are backed by government securities).

Short term government debts VS FDIC:  Both are backed by the full faith and credit of the US government.

Great explanation, thanks!

DreamFIRE

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Re: Ally money market account VS Vanguard Prime money market
« Reply #7 on: December 15, 2018, 09:34:13 AM »
Is there any advantage to putting emergency fund money with an online money market account like Ally versus just putting the money in a Vanguard money market fund?

VMMXX pays out slightly higher interest and it would allow me to eliminate the need of having an extra account. Any reason why I should not do this? I know the interest difference is negligible. Just looking to simplify things.

Ally 2.0%
VMMXX 2.33%-0.16%(expense ratio)= 2.17%

No, Vanguard Prime MM VMMXX is 2.37% compounded net.  Just had to respond about this yesterday in another thread.

https://forum.mrmoneymustache.com/investor-alley/where-does-most-people-store-liquidable-savings/msg2230248/#msg2230248