Why Vanguard and Fidelity Money Market Funds Are a Money Losing Proposition. Go For A High Yield Savings Account Instead

Like millions of Americans I use Vanguard and Fidelity for managing most of my Mutual funds and ETFs. As a result of selling some stocks and lowering my automatic fund investments (due to a brutal stock market) I have about 20% of my portfolio in cash.

I figured that with higher interest rates I could keep some of this money in their money market accounts – VMMXX for Vanguard and SPAXX at Fidelity. But when I checked their rates recently I saw that they are less than 2% (30-day yield).

However when I checked the the yield on some high-interest savings accounts, I realize that the Vanguard and Fidelity funds were nearly one to two percent below some of the leading online savings accounts (see table below from SuperMoney)!

Clearly I need to rectify this situation and find a better place to park my cash holdings.

Go for the High Yield Savings Account Instead

I know money market accounts are primarily used to safely park money because they never “break-the-buck,” but the fact that the difference in yields between these accounts and high yield savings account (which have no expenses) are so significant means I am losing money every day by leaving money at Fidelity and Vanguard.

It would actually be much more cost effective to park my money in a higher yield savings account that have no expense or account fees.

I already opened a high yield savings account and have completed the transaction to move the funds out of my money market account prior to writing this article.

It only took a couple of days since I have to go through my Wells Fargo checking account which links to both accounts. But opening a new high yield account (see this list for a few good options) doesn’t take long and within a few days you can actually start making, rather than losing, money on the most liquid of your cash savings.

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4 thoughts on “Why Vanguard and Fidelity Money Market Funds Are a Money Losing Proposition. Go For A High Yield Savings Account Instead”

  1. Thanks for this post. I was thinking about moving money from the Capitol One 360 Savings to the Vanguard Prime Market Fund and noticed the issue. Then called Vanguard to double check the APY. Was very surprised. I’ll keep my money where it currently is. I’ve been using Capitol One since 2011. While it’s not always the high rate savings account, it’s always near the top. Prefer to park my money in one place and save the effort of transferring accounts from one place to another. Time costs money!

  2. I second what James above stated, but I must respectfully correct him on the American Express Savings account current interest rate that is now paying .90%. This was raised after the Fed Increased the Interest rate earlier this month by .5%. So yes, I too would not want Capital One in my wallet, but rather American Express!

  3. Try a savings account from American Express @ .85% that beats your rate from Capital One who I personally would NOT have in my wallet. However I would use American Express as my card of choice. JMHO!


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