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Comment by sahila | Hacker News Reader

HYSA are great but even better are buying money market funds or tbills.

Money market funds restrictions are they can be bought/sold during market hours and tbills have a specified lock up period, like a month or more. Both can be bought from your broker, it’s intimidating but actually quite simple.

For example buying money market vusxx fund today is giving an equivalent 6.25% apy for high tax earners in California - this is because much of it is tax exempt whereas hysa is not.

This google sheet has all of the current rates and is useful: https://docs.google.com/spreadsheets/d/1v3fn3sZRvkSgqb-RnN2g...

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And there is a way to pay no taxes on the growth. You need to have

1) a tax advantaged account and 2) a regular brokerage with 2x your savings

Technically tax is deferred or literally not paid if tax advantaged account is a Roth.

https://www.bogleheads.org/wiki/Placing_cash_needs_in_a_tax-...

It's my understanding that high yield savings accounts are still the best place for an emergency fund. A tbill might net you more money, but if you're still 8 months from maturity, how does that help you at all?

Sell the bill? Market is very liquid.

If you have to wait 2-3 days to get money your money its not an emergency fund.

So putting my money into a HYSA isn't a good place for an emergency fund? It will take 2-3 days to transfer (without fees).

I've never understood this mentality. I've got a credit card with nearly 6 months of expenses as a limit, most of it not used because I pay it off month to month.

I'd be more worried about the tax implications of selling ETFs and such than the 2-3 days of wait to transfer.

Maybe I lack imagination, but I can't think of anything that I'd need my entire emergency fund immediately. Throw the emergency cost onto a credit card, and transfer the money from the emergency fund to pay off the bill. I guess that doesn't work in some other countries where credit cards aren't as prolific as the US.

> It will take 2-3 days to transfer (without fees).

This depends on the bank. If you have a checking account with the same bank, the funds can be available right away. The standard withdrawal frequency limits still apply.

Withdrawal limits on savings accounts were suspended for COVID, and at least in my experience, hasn't come back - but ymmv

I think this is one of those places where mass-market financial advice is aimed at people who are bad with money and might not be able to float a month of expenses on credit.

I'm not sure I've ever had a nontrivial expense in the US that simultaneously couldn't be paid on credit and wasn't known for weeks in advance either. I would expect any no-credit charge in excess of about a dinner bill to be announced at least a week in advance, implicitly through an invoicing process at the very least, and I would frankly have reservations about whether any vendor who didn't have a way to handle this was really a legitimate business.

Even if that's not an option, your broker is probably fine with floating you a sum of cash matching your recent MMF sale amount as overdraft or margin at a price of somewhere between "we've already factored it into our fees as a cost of doing business" and <0.05%/day of the loan amount anyway, because overnight loan alchemy is a well-understood problem and the bread and butter of retail banking.

For what it's worth, Wealthfront's HYSA offers free same-day transfers, at least to major banks (they just need to support RTP transfers, which many do). But I agree with your point that an emergency fund is fine as long as you can access it within a few days.

Want emergencies can you think of which would require such fast access to cash? For example if you need to replace a big ticket item (car, house...) which has been destroyed it will take longer than that to find a replacement. Most short term emergencies requiring something like rent car, rent living space, flying somewhere can be handled by putting the cost on a credit card.

I don't think buying a car or house qualifies as an emergency. Having access to one might be, but your emergency fund generally shouldn't be "buy a spare house" large - that's what insurance is for.

HYSA are also FDIC insured which is no joke. Money market funds are vulnerable to "bank runs" the same way a bank is. There have been times, like in 2008, where you were not able to actually pull all your money out. https://www.investopedia.com/articles/economics/09/money-mar...

I guess technically there is always a risk of 100% loss but in the case of the HYSA that would happen if the United States dissolves. With a money market all you need is a bank run.

Yep. I was unfortunate enough to get stuck in a money market fund that “broke the buck” during the financial crisis. It took over a year to liquidate, and I think I still lost around 2% of the principal.

Definitely not a place to stick money you absolutely need to be able to pull out soon.

I use SPAXX at Fidelity. It is mostly government paper, and while not explicitly FDIC insured, I am confident of it's solvency in almost all situations due to new money market regs (that should prevent the most common MMF products from "breaking the buck").

If you are incredibly conservative, you could keep enough cash for 30-90 days in an FDIC deposit account, with the rest in money market funds that will take time to resolve solvency issues.

https://www.sec.gov/news/statement/crenshaw-statement-adopti...

https://institutional.fidelity.com/app/proxy/content?literat...

https://fundresearch.fidelity.com/mutual-funds/summary/31617...

Post-GFC, that's not a real risk for retail MMFs. They're de facto narrow banks now.

Vanguard money-market funds can be exited at the close of business any day: bonds may comprise the underlying assets, but you don't actually have to wait for maturity. The main risk with these funds is that you don't get FDIC insurance. Historically this has not been a problem (for Vanguard), but past results etc.

ETA: in 2008 there was an instance where one fund "broke the buck", but the Fed stepped in and backstopped it.

It depends on what your emergency fund is for.

Most people posting here have enough unused credit card "headroom" to get them through a month; so the main thing for an emergency fund is that you can get the cash out of it with low or no cost within that month.

Some use bond funds to do it, some use bond or CD "ladders" - buy a bond expiring in 12 months that is 1/12 your emergency fund each month, and in a year you'll have a rolling "self built fund" that you can get 1/12 of every month with no penalties.

Bogleheads forum has tons of discussion around these kinds of things.

Credit cards are the best place for an emergency fund. You still all your cash in US-Treasuries, gaining 5+ % interest with no federal tax, and as secure as anything in the world. Then if an emergency comes up, use your credit cards, and you have 30 days to pull money out and pay for it, without losing any of your interest.

Unless your emergency comes during an economic downturn or credit crunch, or the issuer gets wind that you've lost your job, or really anything that lets them change the terms underneath you. And they'e inevitably reserved the right to do so.

It's rare to find a revolving credit line that you can actually know will be there when an emergency comes -- canceled cards, reduced limits, suddenly prohibited cash advances, exploitative rate changes, etc are all things that do happen during tighter economic times and just haven't been widespread in the last decade or so because money was cheap. Be careful not to be conditioned strictly on those freewheeling days that are now ending!

You can live the way you describe, and many of us have gone through periods of needing to rationalize it and do so, but with a clear head it's not something I would characterize as "the best blace for an emergency fund" because you just can't really trust it.

I think you’re technically right, but having been a student been unemployed etc. I’ve never seen my credit card limits change negatively

> with no federal tax

I thought it was only federal tax, not no federal tax?

If you buy T-bills through a brokerage, you can easily resell them on the secondary market using the same brokerage. The market price climbs as maturity approaches, so you typically capture yield in proportion to how long you held the T-bill.

You can get the best of both worlds with short term tbill etfs; liquidity and tax advantages, and the raw rate.

There comes a point where you are optimizing finances beyond what is necessary, in my opinion.

Have a decent plan for your cash so it's earning good interest, then go out and focus your time on the rest of life. Automate as much as possible. Don't worry about a few $10s of extra interest!

There are times when you need to have a ton of money in cash or near-cash (e.g. saving for a down payment for a first home), and then it makes a lot of sense to optimize.

For a normal emergency savings fund, it does not make sense (unless you legitimately enjoy doing it!)

If your bank account is also at your broker (ex. Schwab, Fidelity) then money market funds are actually more convenient than a HYSA. My money market fund money is available the day after I sell and there is no waiting period to transfer between my accounts at Schwab. Also I can use the money market fund to underwrite cash secured puts or for other investment activities.

Transferring between institutions I have had take 3-5 days before funds clear. Wires can be faster but come with fees and a whole bunch of questions to make sure you aren’t a scammer trying to empty an account.

So, it is good to know about all your options. I keep my 6month emergency fund in SNOXX money market fund. With Fidelity you can set a sweep to go into their short term treasury fund and not even have to sell anything to transfer the money out.

I did some cursory reading on money market funds (MMFs) and I don't quite get the advantage if rates are roughly the same?

For instance, if there is a high-yield savings account (HYSA) option that gives 5.3% interest and a MMF that gives 5.4% (with a 0.1% expense ratio), would I not receive the same amount of interest in practice?

Not trying to disagree with you or anything, just making sure I understand the vehicle.

Usually, taxation differences. Also, MMF yields are generally quoted net of expense ratios already, you don't subtract them out a second time.

5.3% https://www.viobank.com/cornerstone-money-market-savings

From a practical standpoint they’re the same - it’s the at the margin (MMF is likely to “reset” more quickly than a high yield savings account, you’re also risking it “breaking the buck” in times of extreme stress, + a lot of the income in a MMF you won’t pay state tax on, on the other hand an HYSA is FDIC insured)

I'm just seeing a bunch of #NAME errors.

Same

Click on the "Instructions" tab at the bottom of the page, you have to create a copy for your personal use. The #NAME errors is caused by the table trying to get data from a tab called "My RateSet" which doesn't exists yet.

I don't see any reasons not to put everything into diversified ETFs. Low risk, reliably comparatively high returns unless the world economy or the entire US economy crash (which would ruin the value of almost every asset anyways).

Your emergency fund shouldn’t be in stocks.

What you suggest is comparatively high risk vs tbills and MM funds.

T-bills are literally the safest possible investment bar none.

"T-bills are literally the safest possible investment bar none."

Wouldn't I bonds be safest? They protect against inflation.

You can only buy $10k worth of I-bonds per year. But you're correct that I-bonds are designed to prevent you from losing money.

Most people don't have $10k a year to invest anyways.

You're still taxed on nominal gains on I bonds, so in principle you're still exposed to potential downside up to your tax rate. The way rates are set on I bonds is also unusually subject to tracking error.

“Safe” in this context generally refers only to downside risk. T-bills are safer than I-bonds because T-bills are short-term investments. I-bonds have an early-withdrawal penalty. (I-bonds also have a $10,000 annual purchase limit, but that’s less-relevant.)

You're missing that Tbills have inflationary risk.

You also have TIPS available, but I-bonds are better than TIPS (you can tell because I-bonds are limited per person, TIPS are not).

If you bought (or even buy) I-bonds at the right time, it can be a spectacularly good deal.

T-bills have short duration so their inflationary risk is minimal.

At the lower end, sure. 52 weeks can still be an issue.

No, I am not. Inflation risk is not downside risk.

Inflationary risk is the risk that inflation will undermine an investment's returns through a decline in purchasing power. Downside risk is the risk of loss in value of an investment due to a decline in the price of the security.

Decline in value of an investment because of a decline in the price of the security is not the same as decline in value of the investment because of inflation. Even if the practical consequence is the same.

Inflationary risk matters, and it should not be ignored. But it doesn’t factor into whether an investment is considered “safe,” as that term is typically used in this context.

"Inflation risk is not downside risk."

"But it doesn’t factor into whether an investment is considered “safe,” as that term is typically used in this context."

If you ignore real terms and don't care about actual value (the entire goal of investing), sure. I guess is cash is "safe" too if your ok with losing double digit percentages of your valve over the past 3 years.

This conversation is about the meaning of specific terms, not about whether I care about real investment returns. Of course I care about real returns.

Aren't semantics considered off-topic or not contributing to the conversation at HN?

Part of that diversification is the money markets, no?

If you have a high likelihood of needing the cash in the next 0-24 months, that risk isn't so low.

What low-volatility ETFs strategy would you recommend? let say my goal is to survive inflations and market crash such as 2008 for instance. Personally, I have a very hard time putting all my hard-earned savings on ETFs which can lose a lot of their value overnight.

I wouldn't recommend using stock ETFs for an emergency fund.

SGOV is a reasonable option, it's basically just doing a 1-3 month Treasury ladder for a charge of 0.2%, and slightly less frustrating liquidity.

(So right now you'd get like 5.2% with SGOV, vs 5.4% with treasuries)

BOXX is more tax advantaged.

Frankly I do this as well. I think it depends on your personal financial situation and how often you expect to be withdrawing from your emergency fund. By increasing levels of "emergency", do you use your emergency fund to pay for:

* Gas because you forget to plan properly for road trips? Keep your funds in cash.

* Your vehicle's regular oil change which happens every couple years and you should be able to plan for? Maybe a HYSA

* Your transmission goes out and you need a new car? Diversified ETFs probably fine

Many "emergencies" can in fact be saved for, which leaves only the truly rare and uncommon ones, which usually don't require that you have all of the emergency fund available as cash at a moment's notice. Also because they inherently only happen on a time scale of YEARS, then in the long run you're just self-insuring yourself and it's a bummer if the transmission goes out in a down year and you have to exit a position, but statistically speaking you'll come out ahead.

> but even better

This is highly dependent on what the intended purpose of the money is.

> tbills have a specified lock up period, like a month or more

What is this referring to? I've bought and sold T-Bills in the same week, and have never encountered anything about a lockup.

I think they may be confusing it with savings bonds

You’re right you can but/sell on the secondary markets easily. If you buy it directly on treasurydirect.gov, then you might have a lockup depending on the time interval you pick.

Aren't money market funds only good today because of the high fed interest rate? If/when that comes back down so will the money market rates.

Higher than 0% yes. Historically rates are still on the low side. And yes they move with the fed rate.

Yes. When they start cutting rates that would be good time to buy Treasury Notes/Bonds or longer term CDs so you can lock in the interest rate for a period of time.

Expected rate cuts are generally already priced into longer-term bond prices, so trying to get in just before rates go down is basically exactly as hard as market timing.

And so will HYSA rates.

TTTXX at BoA/Merrill is another one.

Although, in a shit hits the fan scenario, I would expect to be able to access my FDIC insured account money more reliably than a money market fund.

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