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Anyone think that a site like Wealthftont is a good place to stick an emergency fund?
(www.wealthfront.com)
this post was submitted on 27 Aug 2023
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I don't know this particular place, but I have my emergency fund in a vanguard money market (Vusxx), and it is super safe and returning over 5%. It takes about 24hrs to settle any sells, so I have fairly quick access to my cash
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).