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I do asset allocation: 10% in cash. 40% in equity mutual funds. 60% in bond mut funds.

I've had the cash in Vanguard money market funds.

Wondering about keeping some of the cash in HYS account to get ~5% interest.

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    that's 110% percent, how do you manage that :)?
    – njzk2
    Jul 16, 2023 at 20:57

3 Answers 3

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It's actually the other way around: a savings account (high yield or otherwise) is likely to be insured by the FDIC. We can't verify without knowing the exact account, but this should be prominently displayed when you sign up for the account.

On the other hand, from Vanguard's website on their money market accounts (https://investor.vanguard.com/investment-products/money-markets)

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

In general, money market accounts are not FDIC insured. So, if you get a higher rate than a money market account with an insured savings account, there doesn't seem to be a lot of downside. Do note that money market funds at Vanguard such as VMRXX are currently (July 2023) at ~5% interest as well, so if you are seeing a big difference in a HYS, you may be in the wrong money market funds.

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    As another alternative, Certificates of Deposit usually are FDIC-insured. I'm currently running one HYS and two CDs for my emergency funds; may switch to a three-CD rotation.
    – keshlam
    Jul 16, 2023 at 2:29
  • 10% + 40% + 60% > 100%, but your question still stands.
    – Ryan
    Jul 16, 2023 at 13:50
  • @keshlam Are they penalty-free CDs? Otherwise the lack of liquidity makes them inappropriate for emergency funds. Jul 17, 2023 at 2:48
  • If there's an emergency where I won't redeem equities -- another 30% "black swan" market downturn to wait out -- the penalty will be the least of my concerns, and the HYS gives me initial flexibility. And this is why one sets up a rotating schedule of CDs, so there's always a relatively short wait until one matures cleanly.
    – keshlam
    Jul 17, 2023 at 6:11
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Assuming US: If your account is insured by the FDIC, it's as safe as any other account.

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Generally speaking, the safest money markets and any savings account are equally safe up to $250,000. Beyond that, the safest money markets are generally safer.

Each can be safer, depending on the details. You can find money markets that are, for all practical purposes, completely safe, and all savings accounts are safe up to 250,000—except you may have to wait to get your money if the bank fails.

A money market account invests in short-dated highly safe bonds. Some directly "park" their money at the fed, which is the safest form money can take. Others own only federal bills, which

A savings account is insured by the FDIC up to $250,000. Beyond that, you can lose money if the bank makes a risky investment and fails (cf. Silicon Valley Bank). By contrast, you can lose money in a brokerage account only if the bank commits fraud, or the asset itself loses value.

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    Whereas bank accounts are not assets that can lose value, except to inflation. As always, everything is a trade-off; there are multiple reasonable approaches depending on your own risk tolerances and time horizons. Personally, if my bank accounts OR money market accounts ever get to a quarter mil, especially in a single bank, I'm doing something very wrong or very transient.
    – keshlam
    Jul 17, 2023 at 6:15

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