A Baby Step for Simplifying My Finances

I closed my ING and HSBC online savings accounts at the end of 2006. Why? Because I want to simplify my finances, which is one of my goals for 2007. I want to simplify my finances so that I get to focus on the bigger picture rather than being bogged down by the nitty gritty of seeing the trees but not the forest. More on the simplification scheme later. Another reason for closing the two accounts is that I already have a competitive substitute, Vanguard money market fund.

I opened the ING account a few years ago when ING offered much higher yield than what money market funds were paying at that time. ING was the pioneer in online savings accounts. They probably gave up a lot of revenue they could’ve received when they offered above-market rates to their customers. However it didn’t last long until the mainstream banks like Citibank, HSBC, and Washington Mutual, woke up and offered similar products. Another list of new players also entered the market, Emigrant, GMAC, MetLife, E-Loan, Capital One, Amboy, UFB Direct, iGo Banking, to name a few. ING decided not to compete on rates with these new players and their rates lagged what the new competitors offered. I guess they are trying to see how long these new players can stay in the game or they think most of their customers will stay with them due to familiarity and inertia.

When HSBC came out with its copycat online savings account service, I signed up because of slightly higher rates than ING’s. That was before the enlightment of simplifying finances. I now realize I will do perfectly fine if I just stick with what I had for many years — a Vanguard money market mutual fund. The yield difference between it and an online savings account is trivial. Vanguard’s Prime Money Market Fund currently yields 5.10%. HSBC pays 5.05%. ING pays 4.50%. A no-name iGo Banking offers 5.30% APY. On a $25,000 deposit, the difference between Vanguard Prime Money Market Fund and iGo Banking is $50 a year, before tax. I will not give my social security number to iGo Banking for a net after tax gain of $35 a year. Because I live in a high tax state, Vanguard’s Treasury Money Market or Tax Exempt Money Market funds actually pay a higher after tax yield than the Prime Money Market fund. That brings down the yield difference to an even smaller number (maybe even negative).

What do I get with a Vanguard money market fund?

  • Unlimited free check writing = immediate access in case of emergency. Free checks too. I don’t have to wait 2-4 days for ACH. If I’m really in a pinch I can ask for a free wire transfer.
  • Unlimited number of withdrawals. No Reg. D limit of 6 withdrawals per month.
  • Same day exchange to any Vanguard mutual fund. I don’t have to move the money around when I invest.

But the best of it all is that I now have two fewer accounts to worry about. A baby step toward simplifying my finances. I’m telling you, there’s beauty and freedom in simplicity.

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Comments

  1. Sun says

    While it’s true that VMMXX’s yield at 5.10% is very close to what I get from IGoBanking’s 5.30%, VMMXX does carry a 0.29% expense ratio which has to be considered when doing the comparison. Besides, the fund, like any other Vanguard mutual funds, requires $3000 minimum amount. When some day the fund’s yield is no longer competitive, it’s not flexible to maintain that amount of balance, otherwise there will be another $10 fee per year for balance below $2,500. With those banks, however, I can always move money around to get the highest yield and leave only $1 on those accounts that are out of favor.

  2. Harry Sit says

    Sun,

    Thank you for your comments.

    The quoted yield on any money market mutual fund, Vanguard included, is net of expense ratio. Therefore the 0.29% or whatever expense ratio is a non-issue. If the yield you see on Vanguard’s website is 5.10%, that’s what you receive after the expenses are taken out.

    The $3,000 minimum for Vanguard money market fund is not a problem for me because I will always keep more than $3,000 for emergency fund and I will always maintain my investment with Vanguard.

    There are also other considerations beyond the yield. I put them in comments to posts on The Simple Dollar here and here.

  3. Anonymous says

    You need to make sure that you mention that there is a 10k minimum or you get charged $20 per year. Unless you opt in to the e-service account management.

  4. Anonymous says

    By the way, great blog. I stumbled on it from another. That was my comment above.

    I have an IRA account wit Vanguard and an emergency fund with ING and like your idea of simplification. When I went to Vanguard to check it out, I noticed the annual account fee and thought it should be mentioned to your readers.

  5. Harry Sit says

    Anonymous,

    Thank you for your comments and welcome to my blog. The $20 fee was announced only yesterday (Apr. 26, 2007). One used to be able to have $3,000 in a regular money market fund and not pay any fee. Now you have to accept e-statement if you have less than $10k.

    I think e-statements aren’t too bad. They save trees and postage costs. I will do another post about Vanguard’s new fee structure.

  6. Justin (from Credit Finance Message Board) says

    TFB, I completely agree about ING savings no longer being worth it. Emigrant and others have had higher rates than them the last couple years. What I don’t get is why ING pays for such massive advertising with billboards, commercials, and magazine ads still to this day. They would be able to offer a higher rate (and get more customers) if they only cut down on advertising?

    But back to your situation – I agree $35 a year extra is not worth the trouble for two accounts.

  7. Harry Sit says

    Justin – Successful businesses try not to compete on price alone. They compete on product differentiation and image. Through advertising they are telling both new and existing customers that the ING brand and convenience are worth some basis points. They are OK with losing the most price sensitive customers. Because they are the largest online savings account provider — last time I read they have 10 times more than HSBC Direct — an increase of even 10 basis points will cost them a lot of money, perhaps many times more than the cost of advertising.

  8. Anonymous says

    Do you still feel this way today, with VMMMX yield in the tank (0.03%) and lack of FDIC-insurance which clearly became apparent in the fall of 2009? Did you go back to your online savings account?

  9. Harry Sit says

    Anonymous – When the cost for simplicity is small, go for simplicity. When the yield difference is significant, go for the higher yield, although I still don’t think the lack of FDIC insurance on a Vanguard money market fund is a big deal.

  10. Ché Ché la Femme says

    To follow up on comment #8 a year later:

    The yield for the past year for the Vanguard Prime Money Market Fund has been an anemic 0.07%.

    One could do better with an online personal savings account . . . and with no risk.

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