{"id":425,"date":"2023-11-08T12:51:37","date_gmt":"2023-11-08T17:51:37","guid":{"rendered":"https:\/\/gmays.local\/?p=425"},"modified":"2023-11-15T13:33:21","modified_gmt":"2023-11-15T18:33:21","slug":"psa-put-your-cash-in-a-money-market-instead-of-a-savings-account","status":"publish","type":"post","link":"https:\/\/gmays.local\/psa-put-your-cash-in-a-money-market-instead-of-a-savings-account\/","title":{"rendered":"PSA: Put your cash in a money market instead of a savings account"},"content":{"rendered":"\n

I am sharing this since this may not be common knowledge for some: Due to the current high-interest rates, you’ll earn much more on your savings in a money market account compared to a standard savings account.<\/strong><\/p>\n\n\n\n

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Examples<\/h2>\n\n\n\n

Current Bank of America savings yield is ~0.01%<\/strong>, while for Vanguard’s money market fund (VMFXX) it’s 5.29%<\/strong>.<\/p>\n\n\n\n

Bank of America Savings Yield<\/h2>\n\n\n\n
\"\"<\/figure>\n\n\n\n
<\/div>\n\n\n\n

Vanguard Money Market Yield<\/h2>\n\n\n\n
\"\"<\/figure>\n\n\n\n
<\/div>\n\n\n\n

Real-life application of where this helps<\/h2>\n\n\n\n

In late 2023, I bought a new Ford Bronco Wildtrack (4D, MIC). I ordered it a couple years prior (long waitlist) and waited so long that I forgot I ordered it.<\/p>\n\n\n\n

Then, one day, I got a call that it was on the lot\u2014quite a large, unexpected expense, as you can imagine.<\/p>\n\n\n\n

I knew interest rates were high, but the auto loan interest rate they offered blew my mind: I have a perfect credit score, and the best Ford could do was 8.99% \ud83d\ude31<\/p>\n\n\n\n

If I couldn’t find anything better, I was prepared to purchase it in cash, but I called around. I called USAA, and they offered 5.89%. Then, finally, I called Navy Federal, and they offered 4.74%, so I took it and received the check the next day.<\/p>\n\n\n\n

So, how does the Money Market help?<\/h3>\n\n\n\n

First, cash is more valuable when the cost of capital is high, such as in the current interest rate environment.<\/p>\n\n\n\n

So, keeping the cash on hand is preferable, if possible. And with a 4.74% interest loan, it certainly was because I earned 5.29% on my money in the Money Market account \u2014 a profitable spread (positive arbitrage). It’s been a while, but arbitrage is back again, thanks to high interest rates \ud83d\ude02<\/p>\n\n\n\n

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How I do it<\/h2>\n\n\n\n

I use a Vanguard brokerage account and keep my savings in the settlement fund, which can use VMFXX (money market with 5.29% yield).<\/p>\n\n\n\n

If I need to draw from my savings, I transfer the funds, which just takes a couple days. So, I keep a bit extra operating cash in my checking account, which is more than offset by the significantly higher interest rate.<\/p>\n\n\n\n

And because my cash is in a settlement account and not a fund, I don’t have the typical limitations\/minimums that a money market fund has while still getting the yield of a money market fund.<\/p>\n\n\n\n

There are other ways to do it (maybe even with higher yields), but I settled on this since I already use Vanguard and it’s fairly simple. The ‘best’ approach will also likely change as the environment evolves (e.g., not long ago HYSAs were a better option), so reevaluate annually.<\/p>\n\n\n\n

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Other implications<\/h2>\n\n\n\n

The high risk-free rates also change investment calculus. Other investments must return more to be worthwhile compared to the low interest rates of a couple of years ago (capital is no longer cheap). We haven’t seen rates like this in decades, so we’re still getting used to the implications as our intuitions adjust.<\/p>\n","protected":false},"excerpt":{"rendered":"

I am sharing this since this may not be common knowledge for some: Due to the current high-interest rates, you’ll earn much more on your savings in a money market account compared to a standard savings account. Examples Current Bank of America savings yield is ~0.01%, while for Vanguard’s money market fund (VMFXX) it’s 5.29%. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"_links":{"self":[{"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/posts\/425"}],"collection":[{"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/comments?post=425"}],"version-history":[{"count":5,"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/posts\/425\/revisions"}],"predecessor-version":[{"id":547,"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/posts\/425\/revisions\/547"}],"wp:attachment":[{"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/media?parent=425"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/categories?post=425"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gmays.local\/wp-json\/wp\/v2\/tags?post=425"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}