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| Money market question | |
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| Tweet Topic Started: May 11 2007, 11:09 AM (306 Views) | |
| CrashTest | May 11 2007, 11:09 AM Post #1 |
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Pisa-Carp
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I am thinking of putting money into a Money Market account. Can anyone here tell me more about it? Should I do it with my bank, or somewhere else? I think some companies like Capital One offer 5% APY, banks seem to offer .04 to 1.80 APY or around there. So if it's 5% APY, that means 5% of the total a year correct? |
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| Qaanaaq-Liaaq | May 11 2007, 11:27 AM Post #2 |
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Senior Carp
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A money market account is kind of a hybrid account that incorporates the best features of CDs and checking accounts. MMs can offer interest rates almost as high as CDs now (around 4.5% to 5%). MMs are not locked for a certain interest rate for a fixed period of time such as CDs. Checks can be written against MM accts. but only a certain number per month (3 per mo. max. I think). Interest is earned monthly. Check the interest rate and the APY. The APY will be slightly higher than the interest rate because of compounding. Each month the interest will be added to the principal to become the new principal. |
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| CrashTest | May 11 2007, 11:46 AM Post #3 |
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Pisa-Carp
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Thanks. So it's monthly? Let's say the APY is 5% - and I have $10 in the account. Will it add $.50 to it that month, and likewise 5% each month? That seems pretty good if you have a large amount in the account, if it's monthly. |
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| Qaanaaq-Liaaq | May 11 2007, 12:05 PM Post #4 |
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Senior Carp
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The interest is equal to the principal times the rate times the time (i = p * r * t). Or you can google “interest calculation”. There are web sites out there that allow you to enter the variables, calculate the interest, and then display the result to you. |
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| QuirtEvans | May 11 2007, 01:21 PM Post #5 |
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I Owe It All To John D'Oh
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One other thing about money market funds. They are restricted in the assets that they can hold ... everything must be short-term. So, although they are a mutual fund, they essentially have a fixed price of $1.00 per share .... because the assets that they hold are so short-term that they can't lose money. If they are "truly" a money market fund, that is. And the SEC polices funds that call themselves money market funds pretty carefully. |
| It would be unwise to underestimate what large groups of ill-informed people acting together can achieve. -- John D'Oh, January 14, 2010. | |
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| ny1911 | May 11 2007, 09:53 PM Post #6 |
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Senior Carp
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Most MMfs offered through mutual fund companies are not FDIC insured, but they give good returns with goo d convenience. Look for low operating expenses; I recommend Vanguard. |
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So live your life and live it well. There's not much left of me to tell. I just got back up each time I fell. | |
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| QuirtEvans | May 12 2007, 03:55 AM Post #7 |
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I Owe It All To John D'Oh
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Ditto. |
| It would be unwise to underestimate what large groups of ill-informed people acting together can achieve. -- John D'Oh, January 14, 2010. | |
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| jon-nyc | May 12 2007, 06:03 AM Post #8 |
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Cheers
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Yeah, Vanguard is great. They even have specific MM funds for certain high-tax states that are exempt from federal and state taxes. I keep my cash in this Vanguard fund. |
| In my defense, I was left unsupervised. | |
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| CrashTest | May 12 2007, 09:40 AM Post #9 |
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Pisa-Carp
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Thanks - exactly how much of a money return do you get per month or year? For example, let's say you had $10,000 in a fund - what sort of actual dollar values should you expect to gain after a month, or a year? (Including fees etc) |
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| jon-nyc | May 12 2007, 09:56 AM Post #10 |
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Cheers
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I'm probably getting around 3.75% net of fees. So that would be about $375 on that 10k every year. (tax free) Not fantastic, but then I don't view this as an 'investment', rather just a place to keep cash where it gets some modest returns. COmpared to 3-4 years ago, its a fantastic return! |
| In my defense, I was left unsupervised. | |
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| CrashTest | May 12 2007, 10:00 AM Post #11 |
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Pisa-Carp
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Do you get the returns every month, or only at the end of the year? Has anyone tried Capital One's Money Market? It seems decent, at least 4.75 APY, which is more than most banks offer. |
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| jon-nyc | May 12 2007, 10:27 AM Post #12 |
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Cheers
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They give returns every month. The C1 is 4.75%, but I'm sure thats taxable. In my case that would net to about 2.6-2.8%. For me the tax exempt Vanguard is the better option. |
| In my defense, I was left unsupervised. | |
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| CrashTest | May 12 2007, 10:56 AM Post #13 |
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Pisa-Carp
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So if it's about $375 on 10k a year at that rate, how is the percentage split up per month? Would you get something like $30 a month and eventually it'd add up to close to $375? |
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| jon-nyc | May 12 2007, 12:14 PM Post #14 |
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Cheers
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Yeah, roughly. It can vary, though, with short term interest rates. THe trend over the last few years has been higher, though. |
| In my defense, I was left unsupervised. | |
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| jon-nyc | May 12 2007, 12:15 PM Post #15 |
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Cheers
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keep in mind the fund I pointed to is tax exempt in NY state only. They have other funds for other states, and then one thats just exempt from federal taxes. |
| In my defense, I was left unsupervised. | |
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| ny1911 | May 13 2007, 02:43 AM Post #16 |
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Senior Carp
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I have that same fund Jon. Crash - The yield of the MMF changes daily with the price of bonds, but generally not significantly. On any given day, they report an effective annual rate which means, if they could lock in their current daily rate, that is what you would earn over the entire year. Also provided is the effective annual yield, which is the compounded rate. In the case of the NY MMF that Jon posted, ignoring expenses, the annual rate is 3.76% Divide by 365 and you will get the daily rate, which is 0.0103%. Multiply that by the number of days in the month and the dollars invested and you will get a reasonably close estimate of what your monthly income from the fund will be, assuming rates don't change significantly. So in January you'd earn #31.93...in February you'd earn $28.94. As Jon said, in this particular fund, you pay no taxes on the income, if you live in NY state. Vanguards taxable federal MMF (here) earns over 5%, but has slightly higher expense ratios. |
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So live your life and live it well. There's not much left of me to tell. I just got back up each time I fell. | |
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| QuirtEvans | May 13 2007, 04:28 AM Post #17 |
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I Owe It All To John D'Oh
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I have to disagree with Jon and NY, slightly. Money market funds do NOT change value daily. They have a constant value of $1 a share. Because the funds are so short-term, they don't change value enough to affect that $1 a share price. And if they did, the SEC would be all over them. The SEC won't let a money market fund have a share price (technically, called net asset value) that varies from $1 a share. That's what the name "money market fund" means. BOND funds ... short-term, long-term, whatever ... change value daily, up or down. ALL mutual funds are valued daily. You can see them in the newspaper, for the bigger funds .... the WSJ, the NY Times, etc. For a money market fund, Jon says that interest is posted monthly, which is not technically accurate. It's posted to the account daily. However, they only send you a statement monthly. If you happened to redeem on the 15th of the month, though, let me assure you, you'd get 15 days of interest, even if you haven't seen a statement posting that interest yet, and even though it's only a partial month. |
| It would be unwise to underestimate what large groups of ill-informed people acting together can achieve. -- John D'Oh, January 14, 2010. | |
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| jon-nyc | May 13 2007, 04:33 AM Post #18 |
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Cheers
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Neither of us said they change value daily. Rather, we said the interest rate changes. |
| In my defense, I was left unsupervised. | |
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| QuirtEvans | May 13 2007, 04:39 AM Post #19 |
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I Owe It All To John D'Oh
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That was what I was responding to you from you, Jon, which I think is a little misleading. They give returns daily, they just post them monthly. On the other point, you're right, I read it too quickly. NY did say yield, and yield does change on a daily basis. |
| It would be unwise to underestimate what large groups of ill-informed people acting together can achieve. -- John D'Oh, January 14, 2010. | |
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