Do Money Market Funds Make Any Sence At This Time?

enduser | Oct 31, 2023 | 711 posts since 2015

I listen to the Dave Ramsey show and he recommends to invest in MMF. So I looked into it. Unless I'm misinterpreting the information the MMF seems to be a looser, vs a high yield savings account and when you add the management fees it gets worse.

Forbes has an article with an example dated 26 Oct 2023. In the article they show that if you deposit $70k in a MMF today by the end of 12 months you will have made $3,311 in interest. When I ran the numbers that comes out to about 4.75% APY excluding the management fees.

https://www.forbes.com/advisor/investing/the-best-money-market-mutual-funds/

When I run the numbers using the same $70k this time using my high yield savings account paying 5.35% APY at the end of 12 months I will have earned $3,745 in interest and paid no fees. That is a $434.00 gain vs the MMF example.

Going to Fidelity is see several MMF listed but the best one I found shows a 7-day yield of 5.33%. Is this comparable to the yearly APY?

Have I overlooked some facts about the MMF versus the high yield savings acounts?

5

Answers

choosefi | Oct 31, 2023 | 37 posts since 2017

I use VMFXX Vanguard Federal Money Market Fund with a compounded yield of 5.43% after fee (like APY). The 7-day yield is like the APR. I use VMFXX like a bank savings account, and 4 week T-Bills at Treasure Direct for the bulk of what would go into a CD otherwise. I would not use a bank for short term savings right now, they play too many games.

8

Rightdx | Nov 1, 2023 | 43 posts since 2022

Vanguard charges a fee for VMFXX unless you have an account with them. I like to park funds in SWVXX (Schwab, 5.24%) or the ETF SGOV.

3

RZ | Jan 8, 2024 | 391 posts since 2017

How so? I hold VMFXX in both my Vanguard and Chase accounts and the APR is the same.

2

enduser | Nov 1, 2023 | 711 posts since 2015

Thanks to each poster for the answers posted. Much appreciated. At least I have a better understanding about this financial product.

6

w00d00w | Dec 23, 2023 | 360 posts since 2012

one advantage for government money market funds over high yield savings accounts, for those who live in states with income tax, is that a portion of interest earned may not be subject to state taxation. for instance, VUSXX (Vanguard Treasury Money Market Fund) currently holds 96+% of its assets in TBills. so a considerable chunk of interest earned through that fund this year will not be state taxable. just need to remember to make the adjustment for that amount when filing taxes.

6

txFish1 | Oct 31, 2023 | 476 posts since 2023

I use Fidelity FZDXX which is currently at 5.20% after expenses. Like Trailspeed I use it as a bank account to pay bills and it comes with an ATM/Debit card. It is not FDIC insured like a bank HYSA but if Fidelity were to go out of business I would probably be more worried about finding food and ammunition than my money as something catastrophic would have to happen for them to go out of business. Also like trailspeed I have been buying T-Bills since last December and getting 5.4% to 5.6% and they are very liquid in case O needed some money quick

5

Rightdx | Oct 31, 2023 | 43 posts since 2022

According to ChatGPT3.5, the published APY includes management fees, so I would just compare rates and go with the highest one that is easiest to get.

"Does the APY interest rate of a money market fund include management fees, or do fees get tacked on after?"
ChatGPT's Answer:

The Annual Percentage Yield (APY) of a money market fund typically reflects the fund's yield after accounting for expenses, including management fees. The APY is a standardized way of expressing the fund's return to investors, and it incorporates both the fund's interest income and its expenses, such as management fees.

So, when you see the APY of a money market fund, it's already factoring in the impact of fees on your returns. This means that the APY represents the net return you can expect to earn after all expenses are deducted from the fund's earnings.

It's important to review the fund's prospectus and disclosures to understand the specific fees and expenses associated with a particular money market fund, as they can vary from one fund to another. Keep in mind that the net yield or return you receive will also depend on factors like market conditions and the fund's underlying investments.

4

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.