Froogal: Personal Savings Account vs MMMF vs Froogal Club Savings

Your best 3 options for your liquid savings - REVIEWED

Times are tough and every penny counts.

So this presents the question:

Where is actually the best place to keep your liquid savings?

Obviously, anything not being saved is either being invested in a total market index fund or used for student loans/home mortgage payments.

The most core component of any FIRE member's liquid savings is obviously an emergency fund with 3-12 months worth of living expenses. This can be anywhere from $6,000 to $100,000.

We want this money to:

- Earn the highest return possible

- Have zero or close to zero risk of losing value

- Be accessible on-demand

Pretty basic.

So that leaves us with 3 serious options.

Option 1

Classic Personal Savings Account

We will assume that your total liquid savings is below $250,000 in your personal savings account.

This means all funds in here will maintain FDIC-insurance coverage.

This also means that this will be the lowest risk option - but only slightly.

The highest rate for personal savings accounts as of 9.16.2020 is 0.90% per Bankrate.

You also have on-demand access for these accounts but are limited to 6 withdrawals per month.

Keys: Lowest risk (FDIC-insured), Lower rate + stuck with a singular bank, withdrawal limits

Option 2

Money Market Mutual Funds

The best aspect of MMMF compared with personal savings accounts is that the rates "float".

That means as general market rates go up, so will your MMMF earnings rate.

THIS DOES NOT HAPPEN IN PERSONAL SAVINGS ACCOUNTS. Most of the time, banks are trying to figure out ways to lower your rate.

Vanguards Prime MMMF has a rate of only 0.01% currently.

This is the other con of MMMF - when rates go down, these go down all the way with them.

Essentially this type of savings vehicle lets you ride the wave and are incredibly useful when rates are rising quickly vs personal savings accounts.

You do have on-demand access to these funds.

You also have an implicit safety net that these funds will not drop below $1 - meaning you will not lose any money you put into them.

For those familiar with the "break the buck" occurrence, these funds did lose 3% of their value (down to $0.97 NAV) during the crisis, but long-term earnings outweigh this short-term loss (similar to short-term stock fluctuations).

No withdrawal limits exist for these funds.

Keys: Lets you "ride the rate wave" (better in a rising rate environment), very safe, and no withdrawal limits.

Option 3

Froogal Club Savings

This option is brand new.

Essentially, it's a blend between a personal savings account and a MMMF.

This account allows you to earn the highest tiered deposit rates (way above the personal savings account max) but the funds are technically "uninsured deposits".

Although they are legally classified as "uninsured" the FDIC has an unspoken policy to never let these depositors lose money ever since 2008. (reference American Banker)

So essentially they are technically uninsured, but you can be assured that you will not actually lose money on these deposits if your/a bank fails.

Froogal Club Savings currently earns 1.00%-1.26% and this number will continue to INCREASE as more savers switch over.

This is because the more users that use Froogal Club Savings, the greater the total deposit amount, the higher rates banks will pay for their Club deposits (possibly as high at 2%+).

There are no withdrawal limits for these accounts (unlike personal savings).

You do have on-demand access to these funds.

Essentially Froogal takes the best parts of options 1 & 2 and adds them together. These accounts allow you to "ride the wave" even higher than what MMMF offer without ever having to worry about the negative part of the rate swing (Club Savings lowest levels will always be above the highest personal savings rate).

Keys: Highest rates (always), Uninsured technically (but insured in an unspoken manner), no withdrawal limits, on-demand access.