A buddy of mine told me about Wealthfront recently and they’re 5% money market account rates.
Growing up in a world where savings accounts and even CDs never approached more than 2%, the rates on this new thing blew me away.
Free money is great, and I’d love to take advantage of these rates, but the only cash I have currently is the emergency fund I’m trying to build.
Anyone have thoughts on if putting an efund in this kind of service is a bad idea? Not sure if it’ll be liquid enough if a major expense comes up.
I don’t know this particular place, but I have my emergency fund in a vanguard money market (Vusxx), and it is super safe and returning over 5%. It takes about 24hrs to settle any sells, so I have fairly quick access to my cash
Money market is the way to go. You are exposed directly to the federal bonds, which are basically what most banks use to back their high interest accounts, so you will get the the highest rate possible with no middle man. Money market funds are not FDIC insured, but the Vanguard fund (VMFXX) has never “broken the buck” or lost value since its inception in 1981.
Money Market Funds are SIPC-insured, which is largely the same as FDIC insurance, except you need to make a claim for SIPC protection whereas FDIC is automatic.
The main other difference as you mentioned is that they’re not guaranteed to have any particular return, and they could go negative by breaking the buck, but that has happened exactly twice ever and after the second time, we got new regulations to further reduce risk. Current MM funds are probably more secure than traditional banking, at least in terms of how likely you are to have to deal with the insurance (i.e. a money market fund failing is very rare, and MMFs are often owned by investors instead of a bank or brokerage).
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Sure, why not? Here’s how my emergency fund is set up:
- 1 months expenses next to my checking
- ~50% of the rest in Ibonds
- ~50% of the rest in t-bills
With ibond rates going down, I’m laddering into t-bills, with the ultimate goal being some bonds maturing every 2 weeks.
I currently also use my brokerage account as my bank account, which is invested in SPAXX (4.91% 7-day average APY). It provides an awesome debit card (no foreign transaction fees, ATM fee reimbursement worldwide, etc), earlier access to my money vs other accounts (e.g. I get paid on Friday, money is there on Thursday), and I’ve had no issues with it for the year or so I’ve used it this way. My t-bills live next to my savings “slush” in the same account, so it’s quite nice. Here’s my actual setup:
- Fidelity Bloom Save - receives paycheck and transfers automatically bimonthly to “checking”; also has my t-bills
- Fidelity Bloom Spend - main “checking” amount, has a debit card, which I never use and keep deactivated
- Fidelity CMA - $0 balance; has my “real” debit card (the awesome one with no FTF), and I just make a transfer from Bloom Spend to this as needed
- Ally Checking and Savings - old main account; connected to Target debit for that sweet 5% discount, and used for a couple of transfers I haven’t bothered moving to Fidelity; I get 4% APY on my savings there, but I only keep about a few hundred there so it’s not an interesting amount
- Treasury Direct - rest of my efund in Ibonds; I’m considering moving this to t-bills at Fidelity, but I’m still deciding
This is a great breakdown! Thanks for taking the time to share. You’ve given me a lot to think about and I’m glad this can work.
I have my savings in a high yield savings account (FDIC insured) and a checking account at the same bank, so I can access the money pretty much instantly if needed. I don’t use Wealthfront specifically but I’ve heard good things about them. Once you earn more than $10 in interest you do have to pay taxes on it.
It’s just a bank account at the end of the day, and it’s FDIC-insured, so why not?
I’m using SoFi right now (4.5%), but I’d switch to Wealthfront in a heartbeat if they had joint account support. They’re always very fast to raise the rate when the fed announces a rate hike, and they seem generally pleasant to use from what my coworkers say.
SoFi has 4.50% Apy on a checking/savings account. Not too shabby for FDIC insured.
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