Savings account vs Investment Money Market Fund - How much where?

For others using savings accounts as well as Investment Money Market Accounts (Like the Vanguard VMFXX/VMMXX), how do you determine the the balance of your funds between the two?

My understanding is that your Savings account is safer and has a consistent interest rate (until the Fed changes things and the banks change again of course), while the MMF CAN have a higher rate of return (but not necessarily since they're based one market conditions etc.).  It seems both have pretty similar level of access to the funds (a couple days to transfer from either to a checking account if needed - although some bills can be paid directly from a savings account, which I do for most of my credit cards currently).

So I'm wondering what the general strategy is for determining what portion of your funds to keep in what location - percentage? money for certain long term goals?  certain amount?.

I'm nowhere near really needing to consider this deeply yet (don't even have $3k in my Vanguard account yet to switch to VMMXX), but I'm trying to get ideas for when I have more funds sitting around and waiting for use (i.e. when I'm saving a car payment every month instead of spending it).

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  • I use the settlement fund (VMFXX), because in my state tax bracket they are about the same. As such, no minimums required.

    I keep money in Savings Accounts or MMF based on the after-tax return. When things change, I move the money as needed. I keep a token amount in an account so I don't have to close it, since it may end up being the higher earning account later.

    Don't waste too much brainpower trying to optimize, because the relative returns are changing frequently, but the spread isn't so large that it makes much of a difference in the long run.

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    • Superbone
    • YNAB convert since 2008
    • Superbone
    • 1 mth ago
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    Yep, had the bulk of my cash at Vanguard for a while but currently, the bulk is at Ally. Like nolesrule said, wherever you're getting the best after-tax return.

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    • TechieM2
    • IT Professional and General Geek
    • techiem2
    • 1 mth ago
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    nolesrule Superbone Ok, so this is probably a basic question I never thought of - How do you determine after tax return?  Are interest and dividends taxed differently?  I just assumed it was all the same so whatever account had the best raw return (either interest rate for savings or dividends for MMF) would be better.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
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      TechieM2 Money market fund "dividends" are ordinary income so do not get a preferential tax  rate.

      Sometimes they may be state tax exempt or partially state tax exempt depending on what's in the funds, and that makes a little bit of a difference when comparing yields.

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    • PhysicsGal
    • Nerdy female homo sapien
    • physicsgal
    • 1 mth ago
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    I only use FDIC savings for liquid savings, and Vanguard VTI ETF for investing.  I guess I still find MMF's sketchy after hearing some of them had issues keeping the value of the dollar back in 2008.  I like my FDIC insurance.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
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      PhysicsGal Vanguard MMFs don't have those issues as they are generally more conservative.

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    • TechieM2
    • IT Professional and General Geek
    • techiem2
    • 1 mth ago
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    nolesrule Superbone Thanks for the input!  For now I'll just keep holding most of my funds in my Ally account.  Eventually I'll have to calculate and compare the after trax yields more closely when I have more funds freed up that could be moved around if the MMF would be better.

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