A few days ago, I had noticed my default Money Market’s rate had dropped significantly (from 4.xx% down to 0.7-ish%)
I then remembered that the 4.xx% rate I was getting was only a limited time Promo rate.
So, I’ve been on the hunt for a better “rainy day” storage account, ideally with:
- As close to the 4-week T-Bill rate as possible
- Check writing privileges (for fast money movement) [or]
Free ACH Transfers
—
I started off with common search terms like:
“highest money market rates”
“highest savings account rates”
“highest checking account rates”
If you’re new to managing your own money, you should be aware of some key differences between a Money Market vs Savings vs Checking account. In short:
[Checking accounts]
Pros:
Allows check-writing privileges
No limit on number of withdrawals
Cons:
Typically have lower rates, unless some promo rate is offered
[Money Market accounts]
Pros:
Usually has higher rates than Checking
May offer check-writing privileges
Cons:
May have lower rates than a High Yield Savings Accounts (HYSA)
Limited to 6 convenience withdrawals per month
[Savings Accounts]
Pros:
Typically offer the highest rates
Cons:
Limited to 6 convenience withdrawals per month
As you’re starting to notice, there is a trend / balance between: “High Rates” vs “Ability to Move Money”
As I was searching last night, I did start to see a disturbing trend. By the time you read this, the bank names will change, but all of the banks offering very high interest savings accounts seem to have some or all of the :
[1] Bad customer service – no one picks up the phone / responds when there are issues
[2] Slow transfers in / out
[3] Fee structures that charge for outbound ACHs
[4] Large number of debit card transactions must be run before the interest rate kicks in
Examples here:
That said, talking with various friends, I did find an optimal solution that balances out my requirements above:
- A Vanguard Brokerage Account
Cash sweeps into VMFXX / Vanguard Federal Money Market Fund
(Yield at time of writing: 5.28%)
https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx
[Credit: NJC]
The only potential downside with Vanguard is that outbound withdrawals do require an ACH transfer – so you definitely have to plan 2-3 business days ahead of time for any large withdrawals.
Recommendation: Still leave about a 7-14 day reserve fund, and/or have a line of credit handy, while your main Emergency Fund is with Vanguard.
Following the above, you’ll always be 2-3 days away from having cash access, while maintaining max yields