My niece is rebalancing her IRA. She plans to move money out of a Vanguard stock fund, and into their money market fund. She’s decided to keep a small percentage of her IRA more-or-less permanently in cash.
Would it be better to put this cash in a money market deposit account instead of a money market fund? My understanding is that money market deposit **accounts **are FDIC-insured to $250k; money market **funds **are not insured.
The only advantage I see in keeping cash in a money market fund is the ease of purchasing shares in other funds in the Vanguard family–online exchanges are simple.
But for holding cash long-term in IRA, why not take advantage of an FDIC-insured money market account?
Note: she is aware that holding cash in IRA is not recommended generally; but she’s of an age where she wants to be ultra-conservative in a portion of her IRA.
In addition to the FDIC insurance, typical money market fund yields are in the 0.10 to 0.30% range. The Vanguard Prime MMF is beating the competition at 0.55%. But online bank money market yields are around 1.00%.
But if you just want to hold FDIC insured cash investments in your IRA, why limit yourself to money market accounts? The only really difference between a money market account and a savings account is the check-writing and ATM options, neither of which you can have in an IRA. For example, the IRA savings account at Ally Bank is at 1.00% right now. And if she is just looking for a safe place to store cash and doesn’t need to be making frequent withdrawals, why not a CD at a bank or credit union?