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State-Centric money market funds?

Fidelity offers a Michigan muni money market fund. With the very low returns today, I’d assume it makes little difference?

If any thoughts please share …

Comments

  • With current MMF rates today, I wouldn't be using a MMF for much of anything, but rather use an internet bank.

    In theory, Fidelity provides a way of coaxing a little more interest out of a core checking account: You open a position in "higher" yielding MMF than your "core" MMF. You keep nothing in the lower paying core account. Then when you need to draw cash (for a check or for an investment), Fidelity will see nothing in your core account and automatically pull the cash from your other MMF.

    But this is just theory. The reality is that most of the MMFs now have seven day yields of 0.01% (after subsidy). Sure, that 0.01% in the Michigan fund might be worth the same as 0.013% in a taxable MMF. An extra fraction of nothing is still nothing. Not worth the hassle.

    Note also that the core government MMFs have a significant portion of their assets in treasuries, which are state tax exempt. While that's not as good as 100% of the interest being state tax exempt, let alone being federally exempt, it's theoretically better than nothing. Though saving a percentage of taxes on 0% interest is but an academic exercise.
  • edited May 2021
    Thanks @msf / The money market fund is simply a low balance “cash management” tool . It’s funded with automatic monthly transfers from my bank. That money mostly comes back out again when needed to pay off a credit card. The cc in turn funds major budgetary outlays like travel. (Smoke and mirrors in a sense.) :)

    What’s also nice, however, is that if a very big purchase is pending (ie new car) I can transfer $$ into the mm fund from a Roth or thru amTraditional account RMD and than write a check almost immediately.

    The “Michigan” option sounded “catchy”. Just wondered. Our state certainly follows every avenue looking for ways to tax.
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