Money-market funds aren’t what they used to be. Not that long ago, they were paying about 2.5%. I should know. Because of that great rate, and in the interest of simplifying our household’s financial life, in the spring of 2019 I closed our beloved Capital One savings account and moved our savings to Vanguard, where we already had an IRA.

A better rate, plus

I describe our former savings account as “beloved” because I really liked the fact that at Capital One you can open multiple savings accounts and name them for specific purposes. I find it helpful to think of three types of savings accounts: An emergency fund, a periodic bills and expenses fund (for bills and expenses you incur sometime each year but not every month), and a big-ticket item replacement fund.

We had all of our savings at Capital One, all nicely split out into separate buckets: Our emergency fund, multiple periodic bills and expenses funds (for vehicle insurance, home insurance, life insurance, property taxes, Christmas gifts, vacations, accounting services), and a big-ticket item replacement fund (which we were using most recently to save for the replacement of our 17-year-old van, which we did, in fact, recently replace).

Back and forth

Last year, with the yield climbing to around 2.5% at the Vanguard Prime money-market fund, I decided to switch all of our Capital One accounts to Vanguard. While that required me to create a spreadsheet where I kept track of how the one lump sum was earmarked, it was one less account to keep track of and it paid about twice what Capital One was paying.

How quickly things change. This year’s economic upheaval has taken a brutal toll on money-market funds, as Joseph detailed in the October issue of the SMI newsletter. Tomorrow, Vanguard Prime — now yielding just 0.01% — is being renamed Vanguard Cash Reserves Federal Money Market Fund and will invest only in low-paying government obligations.

So, I recently switched back to Capital One. I’m enjoying having the money split out into various accounts once again, each one labeled for its purpose, although even there the interest rate has sagged from 1% to 0.65%, which, of course, is still far better than what Vanguard is paying.

Our oldest son now has a savings account at Capital One as well. All three of our children have investment accounts at Schwab, where they are all-in with Sector Rotation (hey, they’re young; they can afford to take a lot of risk!). But he wanted to start setting aside spending money for college, so he went with Capital One. Technically, his account is in our name, though, since Capital One pays a slightly lower interest rate for kids accounts as it does for adult accounts.

Where are you keeping your savings these days? And if you have kids at home, what about them?