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Any experience with Vanguard's state-specific money market funds?

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  • Any experience with Vanguard's state-specific money market funds?

    I'm planning on starting to sock away some money into a money market fund for use for an eventual home down payment.

    When looking into what Vanguard has, I saw that they have a couple of state-specific ones (CA, NJ, NY, PA). I live in CA. The selling point appears to be that the state-specific ones give returns exempt from both federal and state taxes. I know that high returns aren't the goal of MMFs, but I figure every little bit helps. Is there anything I'm missing/any downsides I'm not considering to picking the state-specific one over one of the general ones? The CA one has the same expense ratio as the Prime Money Market Fund (0.16%).

    Thanks to all in advance.

  • #2
    The state-specific MMs probably carry a bit more risk (as they're limited to investing in munis from only that particular state; that's how they get the state tax exemption on the gains), but since no MM account is FDIC insured, I don't think the small difference in risk is something to obsess over, as any MM can break the buck.  If I was in your position, I'd go ahead and use the CA-specific fund.