Emergency Funds - Money Market vs Savings Acct?

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save4kollege
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Emergency Funds - Money Market vs Savings Acct?

Post by save4kollege »

Why do all the experts say to put emergency funds into money market accounts instead of savings accounts? Both accounts earn very low returns but the money market funds at Vanguard and Fidelity charge mgmt fees? What's the advantage of using the MM fund? Thanks.
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Meaty
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Re: Emergency Funds - Money Market vs Savings Acct?

Post by Meaty »

I keep mine in an fdic insured account for the reasons you state. I believe most here would agree
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prudent
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Re: Emergency Funds - Money Market vs Savings Acct?

Post by prudent »

There's a difference between a Money Market FUND (Fidelity/Vanguard) and a Money Market ACCOUNT at a bank or credit union.

Money Market ACCOUNTS don't have management fees. They do have a limit of 6 withdrawals a month.
nikfleisch
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Re: Emergency Funds - Money Market vs Savings Acct?

Post by nikfleisch »

Put it in ALLY savings @.99 and call it a day.
nordlead
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Re: Emergency Funds - Money Market vs Savings Acct?

Post by nordlead »

Well, Money Market Deposit accounts (FDIC insured) are not the same as Money Market Funds (not FDIC insured).

Money Market Deposit accounts at a traditional bank often offered better rates and more features (at least in the past, I'm not so sure that is true any more).

At an online bank, there is often almost no difference except that a Money Market Deposit Account can have checks written against it and you can withdraw money via an ATM.
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Re: Emergency Funds - Money Market vs Savings Acct?

Post by Spirit Rider »

For most of the last thirty (30) years Money Market Funds/Accounts have had higher APRs than savings accounts. Money Market Funds/Accounts are tied to short term (<= 90 days) Treasuries, Commercial Paper, etc... Bank savings accounts can be more tied to the interest earned on loans. So financial institutions with significant loan portfolios can offer better rates.

Since 2008, rates on Treasuries and Commercial Paper have been the lowest ever.

The advice is to keep short term emergency funds in principle protected risk free accounts with a high degree of liquidity. Within that definition, feel free to choose savings accounts, money market accounts, money market funds, savings bonds, CDs, etc...

Management fees are irrelevant for Money Market Funds, the only thing that matters is your net returns. Savings accounts have management fees, the difference between their cost of money and the rate provided you. The only difference is that they don't disclose that to you.
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save4kollege
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Re: Emergency Funds - Money Market vs Savings Acct?

Post by save4kollege »

Thanks all, I appreciate the feedback/clarifications.
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nisiprius
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Re: Emergency Funds - Money Market vs Savings Acct?

Post by nisiprius »

The "experts" must simply have not updated their advice. From the time they were invented, in 1971, until about 2008, money market [mutual] funds earned meaningfully more than savings accounts (and more than the deceptively named bank products called "money market" deposit accounts.) You got the extra return for what was widely regarded as negligible extra risk. The experts would mumble something about "not FDIC-insured but generally regarded as completely safe."

Then came 2008-2009, and money market funds dropped to near-zero interest while the best savings accounts held at somewhere in the 0.75%-1% range, and the failure of the Primary Reserve money market fund made everyone realize that the extra risk was low but not completely negligible.

Since about 2009, there's no reason at all to keep emergency funds in a money market fund rather than a savings account except for convenience factors--the logistics of one more account, delays in moving money from one account to another. Unfortunately, there simply are no good brokerage or mutual fund products that are a close equivalent for a bank savings account.

To someone my age it seems almost impossible to believe that money market funds earn less than a savings account. Or that Eastern Airlines ("The Wings of Man") is gone. Or that I personally possess five terabytes of disk storage... or that I could possibly want more.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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