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.
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).