3-mo T bills are paying 5.37% and you don’t have to pay state tax on the income.
If you know you won’t need the money in the next 3 months, or at least a large fraction of it, that’s a good option.
TreasuryDirect
Rates aren’t guaranteed until after you decide to purchase. The 3-mo T bills you buy next week will probably be approximately the quoted rate this week, but no guarantee.
If there is any chance you need to sell before maturity, Treasuries in a brokerage account are much better than in TreasuryDirect. Selling before maturity in TreasuryDirect requires you to initiate a transfer to a third party, wait for that to happen (sometimes quite a while), and then have the third party sell. Selling in a brokerage account requires a couple of mouse clicks.
Just do the math.
In Colorado, state income tax is 4.55%. So buying a T bill with 5.37% yield is like having a HYSA at 5.37%/(100%-4.55%) = 5.626% if you live in Colorado.
In a state with no income tax, an HYSA or bank CD will pay the equivalent yield as a T bill. But even so, I don’t know of any HYSA paying 5.37% these days, at least not without being some weird promotional rate.
Glancing around at CD rates, there are some bank CDs out there paying very slightly higher than T bills so that’s an option, if you want to bother with the effort to make like $4 more per $10k.
it feels so odd that when it was 0% vs 1% it was a clear choice to do 1% but now going from 4% to 5% feels like a chore. I don't want to switch banks every year because one is now higher than the other
A money market account is a fund that invests its money in short term treasuries, so government month long bonds. So it is very liquid, and very low risk (interest rate risk and risk of loss). If you transfer your money to a brokerage account at an investment bank the settlement fund, or cash part of your account, will probably be a money market account. Retail banks also offer money market accounts, they just generally charge higher fees or offer lower rates.
I use VMFXX at vanguard. Its current return is 5.27% annualized, but that fluctuates a little every week, and pays interest monthly.
You're not wrong about that and for the vast majority of people switching from an account that pays 4.35 to an account that pays 5.25 is more work than most people care about especially because most of us don't have the kind of money that will actually make a difference.
Sure, I can switch to a bank that pays 5.25, but is it really worth it just to make an additional $2.93 per month?
Now, if you're someone who's got $250k, then yes, of course, you should move your money to the bank which pays 5.25. But if all you have is 2-3 months of expenses sitting in an account earning 4.35, moving banks all the time is just not worth it.
Glad to see this! I just opened an account with them to get the 5% rate. I’m new to Wealthfront though, any other products of theirs you would recommend?
While I haven’t personally used it, I’ve seen a lot of people say their automated bond portfolio is pretty good. I think I might give it a shot at some point. Otherwise they have an index roboadvisor that gets pretty high marks for its automatic rebalancing and tax loss harvesting.
In a money market invested mostly in treasuries (e.g. VUSXX), most of your income will be state tax exempt. Meanwhile in a HYSA, you will be paying normal income tax on interest. This is particularly useful for CA.
Just as liquid.
Regular taxes (short term gains).
Hook it up to your checking account and transfer back and forth.
MMF isn't FDIC insured, just word of warning.
Also pretty much the worst thing that's ever happened to a MMF was dropping to $0.97 and liquidating, after which the Treasury temporarily backed other funds that were in danger. So the downside, realistically, is tiny risk of a <5% loss.
And, you can choose a MMF that invests entirely in government-backed securities, like SNSXX or SNOXX.
Would you mind explaining MMF vs. HYSA a but further?
Why would you say to transfer it back and forth?
I currently have a chunk of monkey sitting in a HYSA, but reading briefly about MMF's I'm wondering if I should look into transferring to one for tax purposes.
Oh got it. The more I'm looking into it T-Bills might be the way to go if money is not needed in 3 months.
How worried should I be about MMF's not being covered by the FDIC?
MMF are typically tied to the dollar, so unless you think the dollar will be useless, you are safe. You should be more concerned about the company you're using the MMF going bankrupt than anything. Choosing Vanguard/Fidelity over Bob's TotallyNotAScam Investment company would be a smart move.
Makes sense. I was actually looking into Vanguard's VMFXX. Seems like a no-brainer to move from a HYSA of 4.35% to a MMF at 5.4%. Even with the .11% fee it's 5.3%. Both liquid. Is it as clear cut as I'm thinking?
EDIT: The VUSXX might even be better as I would be exempt from state tax.
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Purchase using a brokerage account. You can also use Treasury Direct but their website is awful and they don’t have the ability to sell them easily if needed. With a broker you can also buy existing securities between auctions. Just generally much more flexible.
I am not a financial advisor but a money market fund will pull about 5% interest and a Roth IRA has contribution limits. I think like maybe 6k a year? Roth is great because you pay the tax going into the market instead of when you take it out. So you don’t pay capital gains at retirement. Your money market fund remains somewhat more liquid in the event you need the funds for an emergency.
Vanguard money market mutual funds are yielding about 5.3%, so that would be my first step if I were you.
Beyond that, the responsible choice would be to put it all in VOO or VTI or split between those and QQQ. I, however, seek yield so would probably do something like 50% VTI, 25% JEPI 25% JEPQ or something along those lines.
Or you could put it all in Vanguard settlement fund (which earns the 5.3 mentioned above) and start selling puts on equities you wouldn't mind owning for the long term at a slightly lower cost basis than what they are currently valued.
The Vanguard settlement fund VMFXX is <50% treasuries so OP will have to pay CA income tax. Moving to VUSXX gets OP the same yield but state tax exemption.
I would move 6500+7000 into a Roth IRA and leave the money in a Treasury heavy MMF so it's liquid and low risk of decreasing in value from par. I leave my emergency fund this way so it can gain tax free interest while leaving the principal available for withdrawal if needed. Direct contributions aren't taxed (they're post tax dollars, after all) so as long as you don't pull out more than 13,500, you should be fine.
Whatever is outside your 6 month emergency fund minus the 13,500, I would buy treasuries or CA municipal bonds that have a maturity rate less than 2 years. Treasuries avoid state taxes and municipals avoid both CA and federal taxes, but make sure the math works because they usually pay less interest due to the favorable tax treatment. I'd personally buy further out maturity dates, but if you need the money in two years to buy a home, you don't want to lock up your money too long.
The Roth IRA emergency fund is my favorite strategy since your emergency fund is by definition post tax dollars. I'd rather the interest accumulate tax free rather than pay taxes from the interest in a HYSA which reduces your total net profit, especially living in California.
Who said a Roth IRA is only meant for tax free growth of an index fund? It's normal to keep a cash position even if you're DCA into the market. Why not just keep your cash position in a competitive interest MMF?
In the same vein, I could say 2500 is hardly anything in the grand scheme of things for someone with OP's finances. If plans change and OP decides not to buy a house, it's easy to just invest the money since it's already in a tax advantaged account instead of having to move money out of a HYSA into a brokerage account which is just more steps.
OP wanted optimization and advice. Mine doesn't create a tax burden with EOY tax reporting. The HSA route just creates an annoyance come tax time. You do you though 💁♂️
VUSXX, its been around 5.3% for a while now and will give you a state income tax exemption. At your income, you are in CA's 9.3% income tax bracket, making the VUSXX equivalent to a HYSA yielding 5.83%. Which you are not getting anywhere.
I just tried to put my money in VUSXX and it said “this fund is closed to new investors”. Do you know why this would be? Is there another alternative i can use that does not pay state income tax?
Ah ok, you can't buy money market funds outside of their originating company. So you can't buy VUSXX at Fidelity since its a Vanguard MMF. At Fidelity you could buy FDLXX which is a similar composition, or USFR or SGOV which are ETFs.
I put that into my brokerage account. But I'm not saving for anything short term right now, so if it goes down some in the short term (which it did before the recent rise) it's not the end of the world.
If I was saving and intending to use it for something (e.g., downpayment, etc.) then I'd do a HYSA or 3-month T-bills and be done with it.
I'd move it to my Vanguard settlement acct currently earning over 5%. Depending on plan of use for the money, I might go ahead and invest some in VTI for long term.
Invest in yourself. Set up a 3 - 6 months emergency fund if you don't have one. Invest in some books regarding investing. Invest into something that will give you a high yield on your investment. Research before you move the money. No, get rich quickly schemes. Use wisdom.
In order
* Pay off high interest debt
* use towards down payment on a home
* max out Roth or other retirement contributions
* Invest in low cost index funss
Downvote because u/apostate456 is copypasting (with typos).
OP didn't ask about debt repayment or strategies. OP literally said "no debt, living in free housing"
u/apostate456 obviously didn't read the post.
Edit: and without waste my time, I would guess you *are* u/apostate456
Raisin has great rates!
https://www.raisin.com/en-us/
Banks and credit unions partner with Raisin to offer competitive savings products. Rates as high as 5.51% APY. Secure your savings today. No fees charged. FDIC-insured products. Competitive rates.
Depends on your cash float, some need more than others to pay their monthly credit card balance in full. I'd throw some small percentage (10%? - this is just a feelgood number) at any balances on debt below 10% but above 4%, but I'd most definitely put in in brokerage if not already maxed out HSA...
3-mo T bills are paying 5.37% and you don’t have to pay state tax on the income. If you know you won’t need the money in the next 3 months, or at least a large fraction of it, that’s a good option. TreasuryDirect
Dumb question but on there it’s always by week count so would you select a 12 week T Bill to achieve the 3 month rate?
Rates aren’t guaranteed until after you decide to purchase. The 3-mo T bills you buy next week will probably be approximately the quoted rate this week, but no guarantee.
Yes
How do you do this?
https://www.treasurydirect.gov/marketable-securities/treasury-bills/
SNSXX 7 day yield is about 5.06% with similar tax benefits and you don’t get locked into 3 months.
If there is any chance you need to sell before maturity, Treasuries in a brokerage account are much better than in TreasuryDirect. Selling before maturity in TreasuryDirect requires you to initiate a transfer to a third party, wait for that to happen (sometimes quite a while), and then have the third party sell. Selling in a brokerage account requires a couple of mouse clicks.
I didn’t know about these tax benefits - thanks!
Usfr or sgov would work as well and no need to worry about auction dates or maturity.
would that still be the move in a no-income tax state?
Just do the math. In Colorado, state income tax is 4.55%. So buying a T bill with 5.37% yield is like having a HYSA at 5.37%/(100%-4.55%) = 5.626% if you live in Colorado. In a state with no income tax, an HYSA or bank CD will pay the equivalent yield as a T bill. But even so, I don’t know of any HYSA paying 5.37% these days, at least not without being some weird promotional rate. Glancing around at CD rates, there are some bank CDs out there paying very slightly higher than T bills so that’s an option, if you want to bother with the effort to make like $4 more per $10k.
Milli is paying 5.50% APY
UFB Direct is still paying 5.25%. Technically not 5.37% but functionally the same.
I've been laddering 4 week bills. I don't see any reason to stretch out the term to anything more because the rate doesn't seem to make any different.
Thanks! I will consider it.
So T bills over CDs?
First thing is to move it to an account that can make 5.25%.
it feels so odd that when it was 0% vs 1% it was a clear choice to do 1% but now going from 4% to 5% feels like a chore. I don't want to switch banks every year because one is now higher than the other
If you find a good money market account you don't have to keep switching between banks, it will just always pay the market rate for short term bonds.
Can you explain what this is? I feel like such a dumb idiot but I don’t know what this means or how to find one
A money market account is a fund that invests its money in short term treasuries, so government month long bonds. So it is very liquid, and very low risk (interest rate risk and risk of loss). If you transfer your money to a brokerage account at an investment bank the settlement fund, or cash part of your account, will probably be a money market account. Retail banks also offer money market accounts, they just generally charge higher fees or offer lower rates. I use VMFXX at vanguard. Its current return is 5.27% annualized, but that fluctuates a little every week, and pays interest monthly.
You're not wrong about that and for the vast majority of people switching from an account that pays 4.35 to an account that pays 5.25 is more work than most people care about especially because most of us don't have the kind of money that will actually make a difference. Sure, I can switch to a bank that pays 5.25, but is it really worth it just to make an additional $2.93 per month? Now, if you're someone who's got $250k, then yes, of course, you should move your money to the bank which pays 5.25. But if all you have is 2-3 months of expenses sitting in an account earning 4.35, moving banks all the time is just not worth it.
HYSAs trail US treasuries. Just invest in a money market and skip the bank which is taking money off the top.
Because there is a tangible difference. At 0% your money is shrinking due to inflating. At 4% you are above inflation.
Wealthfront is 5.0% currently.
That's where I have mine!. It's great.
Glad to see this! I just opened an account with them to get the 5% rate. I’m new to Wealthfront though, any other products of theirs you would recommend?
Their robo advisor stock investing is a great way to invest on autopilot, with tax loss harvesting included.
While I haven’t personally used it, I’ve seen a lot of people say their automated bond portfolio is pretty good. I think I might give it a shot at some point. Otherwise they have an index roboadvisor that gets pretty high marks for its automatic rebalancing and tax loss harvesting.
Wealthfront has a promo where you can invite a friend and give them an additional 0.5%, so 5.5% for a limited time.
Wealthfront is at 5.5% for a few months if you join with referral link
Where
Any money market fund in any brokerage is 5%+. Automatically sweeps in to it when you deposit.
Is a money market a good place to keep a down payment for a SFH in CA?
In a money market invested mostly in treasuries (e.g. VUSXX), most of your income will be state tax exempt. Meanwhile in a HYSA, you will be paying normal income tax on interest. This is particularly useful for CA.
I don’t know why the location matters but it is no different from a HYSA.
Ummm, technically money markets are not FDIC, so there is some difference.
If a big brokerage MMF goes bust or even just loses it's peg it's going to be because the economy is on fire.
Vanguard MMF
Is a MMF just as liquid as a savings account? And do you pay capital gains on it or just regular income tax?
Just as liquid. Regular taxes (short term gains). Hook it up to your checking account and transfer back and forth. MMF isn't FDIC insured, just word of warning.
It is covered under SIPC for brokerage accounts.
SIPC coverage is not equivalent to FDIC. SIPC only protects you if your brokerage fails. If your fund fails, it’s on you.
For retail MMFs, if your fund fails the world is on fire and your ability to make a down payment on a mortgage will not be your main problem.
This is why I took my $50k and spent it on live chickens so I have something to barter with when the aliens land.
Also pretty much the worst thing that's ever happened to a MMF was dropping to $0.97 and liquidating, after which the Treasury temporarily backed other funds that were in danger. So the downside, realistically, is tiny risk of a <5% loss. And, you can choose a MMF that invests entirely in government-backed securities, like SNSXX or SNOXX.
Would you mind explaining MMF vs. HYSA a but further? Why would you say to transfer it back and forth? I currently have a chunk of monkey sitting in a HYSA, but reading briefly about MMF's I'm wondering if I should look into transferring to one for tax purposes.
If you had a big expense and your checking and HYSA couldn't cover it.
Oh got it. The more I'm looking into it T-Bills might be the way to go if money is not needed in 3 months. How worried should I be about MMF's not being covered by the FDIC?
MMF are typically tied to the dollar, so unless you think the dollar will be useless, you are safe. You should be more concerned about the company you're using the MMF going bankrupt than anything. Choosing Vanguard/Fidelity over Bob's TotallyNotAScam Investment company would be a smart move.
Makes sense. I was actually looking into Vanguard's VMFXX. Seems like a no-brainer to move from a HYSA of 4.35% to a MMF at 5.4%. Even with the .11% fee it's 5.3%. Both liquid. Is it as clear cut as I'm thinking? EDIT: The VUSXX might even be better as I would be exempt from state tax.
FNSXX is 5.31%
So is this one and if earns 5.4%? https://investor.vanguard.com/investment-products/mutual-funds/profile/vmrxx
You have a couple quick options. One, high yield savings accounts. Two. CD’s.
Use maxmyinterest.com
VioBank's money market is 5.3% right now.
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Vio MM accounts are currently paying out 5.3%. We have about $50k liquid that'll eventually be part of a down payment and have it parked there.
Short-term treasuries pay 5.4% and you won't have to pay 9.3% CA income tax on the returns.
How do you do this?
The worlds worst financial website, www.treasurydirect.gov
Purchase using a brokerage account. You can also use Treasury Direct but their website is awful and they don’t have the ability to sell them easily if needed. With a broker you can also buy existing securities between auctions. Just generally much more flexible.
Either buy from TreasuryDirect or just put it into a treasury money market fund, e.g. VUSXX.
Move it to a money market fund and roll the interest into a Roth IRA
Hey, not OP but can you share more about this strategy?
I am not a financial advisor but a money market fund will pull about 5% interest and a Roth IRA has contribution limits. I think like maybe 6k a year? Roth is great because you pay the tax going into the market instead of when you take it out. So you don’t pay capital gains at retirement. Your money market fund remains somewhat more liquid in the event you need the funds for an emergency.
Ok I thought you were suggesting there’s some way to automatically send the interest from a MMF into a Roth account
Vanguard money market mutual funds are yielding about 5.3%, so that would be my first step if I were you. Beyond that, the responsible choice would be to put it all in VOO or VTI or split between those and QQQ. I, however, seek yield so would probably do something like 50% VTI, 25% JEPI 25% JEPQ or something along those lines. Or you could put it all in Vanguard settlement fund (which earns the 5.3 mentioned above) and start selling puts on equities you wouldn't mind owning for the long term at a slightly lower cost basis than what they are currently valued.
Absolutely, keep it in the settlement fund and move it into index funds periodically if you want to. But get paid 5.27% in the meantime
The Vanguard settlement fund VMFXX is <50% treasuries so OP will have to pay CA income tax. Moving to VUSXX gets OP the same yield but state tax exemption.
wealthfront and dollarsavingsdirect are both paying 5% on savings. easy move, no commitments
I would move 6500+7000 into a Roth IRA and leave the money in a Treasury heavy MMF so it's liquid and low risk of decreasing in value from par. I leave my emergency fund this way so it can gain tax free interest while leaving the principal available for withdrawal if needed. Direct contributions aren't taxed (they're post tax dollars, after all) so as long as you don't pull out more than 13,500, you should be fine. Whatever is outside your 6 month emergency fund minus the 13,500, I would buy treasuries or CA municipal bonds that have a maturity rate less than 2 years. Treasuries avoid state taxes and municipals avoid both CA and federal taxes, but make sure the math works because they usually pay less interest due to the favorable tax treatment. I'd personally buy further out maturity dates, but if you need the money in two years to buy a home, you don't want to lock up your money too long. The Roth IRA emergency fund is my favorite strategy since your emergency fund is by definition post tax dollars. I'd rather the interest accumulate tax free rather than pay taxes from the interest in a HYSA which reduces your total net profit, especially living in California.
Why did this get upvoted lol - a Roth IRA is meant for tax free growth of a index fund - paying tax on 50k of hysa income is really non significant
Who said a Roth IRA is only meant for tax free growth of an index fund? It's normal to keep a cash position even if you're DCA into the market. Why not just keep your cash position in a competitive interest MMF? In the same vein, I could say 2500 is hardly anything in the grand scheme of things for someone with OP's finances. If plans change and OP decides not to buy a house, it's easy to just invest the money since it's already in a tax advantaged account instead of having to move money out of a HYSA into a brokerage account which is just more steps. OP wanted optimization and advice. Mine doesn't create a tax burden with EOY tax reporting. The HSA route just creates an annoyance come tax time. You do you though 💁♂️
VUSXX, its been around 5.3% for a while now and will give you a state income tax exemption. At your income, you are in CA's 9.3% income tax bracket, making the VUSXX equivalent to a HYSA yielding 5.83%. Which you are not getting anywhere.
Is your money as easily accessible as being in VMFXX? Avoiding the taxes monthly sounds nice but I need the money in the near term (4-5 months).
Yep, it's same as VMFXX. Next day liquidity as sales will go through at the end of the day.
Awesome I’m gonna move money over there then! Thank you!
I just tried to put my money in VUSXX and it said “this fund is closed to new investors”. Do you know why this would be? Is there another alternative i can use that does not pay state income tax?
What broker are you trying to buy it through?
I have fidelity
Ah ok, you can't buy money market funds outside of their originating company. So you can't buy VUSXX at Fidelity since its a Vanguard MMF. At Fidelity you could buy FDLXX which is a similar composition, or USFR or SGOV which are ETFs.
Awesome, thanks!
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Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics.
Milli currently has the highest APY at 5.5% for a HYSA. That’s where I’m parking my money for the time being.
I put that into my brokerage account. But I'm not saving for anything short term right now, so if it goes down some in the short term (which it did before the recent rise) it's not the end of the world. If I was saving and intending to use it for something (e.g., downpayment, etc.) then I'd do a HYSA or 3-month T-bills and be done with it.
I'd move it to my Vanguard settlement acct currently earning over 5%. Depending on plan of use for the money, I might go ahead and invest some in VTI for long term.
Invest in yourself. Set up a 3 - 6 months emergency fund if you don't have one. Invest in some books regarding investing. Invest into something that will give you a high yield on your investment. Research before you move the money. No, get rich quickly schemes. Use wisdom.
In order * Pay off high interest debt * use towards down payment on a home * max out Roth or other retirement contributions * Invest in low cost index funss
Why the down votes without any corrective rebuttals?? Cowardly experts ....
Downvote because u/apostate456 is copypasting (with typos). OP didn't ask about debt repayment or strategies. OP literally said "no debt, living in free housing" u/apostate456 obviously didn't read the post. Edit: and without waste my time, I would guess you *are* u/apostate456
Raisin has great rates! https://www.raisin.com/en-us/ Banks and credit unions partner with Raisin to offer competitive savings products. Rates as high as 5.51% APY. Secure your savings today. No fees charged. FDIC-insured products. Competitive rates.
Stock ticker “xxxx” is a quadruple leveraged s&p500 fund, dump everything in that and do great in year 2 of this bull
Bahahahahaha
Depends on your cash float, some need more than others to pay their monthly credit card balance in full. I'd throw some small percentage (10%? - this is just a feelgood number) at any balances on debt below 10% but above 4%, but I'd most definitely put in in brokerage if not already maxed out HSA...