Broker Sweep Money Market Account Yield

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kaneohe

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What does your broker pay for this? Have Schwab acct w/ cash swept into a Cash Reserves M.Mkt Acct. (and automatically withdrawn to pay expenses). After paying virtually nothing during the financial crisis, the yield has risen so that today it pays about 0.7% or so. Not great...but reasonably ok.

Now Schwab says they are changing to make the sweep account a bank acct. When prodded, they admit the yield will be 0.15% w/ FDIC protection. The words suggest (but don't say directly) that they are forced by govt. rules to do this.

If so, other sweep accounts should be in the same boat. What is your experience? Or is Schwab just trying to make $$ for itself?

I have the option to purchase other money market funds that have higher yields but I have to manually move them there
(buy/sell) so that's a problem when paying bills since I don't know exactly when they will arrive. The sweep funds do that automatically so no problem there.
 
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Just got this info this weekend. Certainly re-positioning the sweep accounts to Schwab bank does save them some dollars and probably reducing some reporting burden for those funds. They also collapsed several of these money market accounts so that there are only two tiers: investor class and institutional class.

Re-read the section on FDIC protection. IRA/Roth account balances in the bank will be aggregated. Not sure about the brokerage account balance. But a footnote on the website (see note below) indicates they will introduce another bank in 2018 so funds can be separated for FDIC protection.

I don't pay bills from the sweep accounts but accumulate cash to use at re-balancing time. Given that I can shield income in the brokerage account from taxes, it might be worthwhile for me to set up and buy a muni money market to hold brokerage funds, and earn a little more cash for re-balancing.

You mention a rate of .15%, this is for the high-yield investor checking account. My understanding is the bank sweep account pays .10% (log in, go to Products/Cash Solutions to see the difference). Leaving it at .10% isn't a great option for the brokerage account, when the Schwab Municipal Money Fund is paying .66% (or tax equivalent .88%).

So I'm still considering a strategy for managing this money to gain tax-free income (same in the IRA and Roth accounts) throughout the year. More work!

I'd appreciate hearing what others are planning to do.

- Rita
 
I have a somewhat similar setup. I like the Schwab bank account specifically because the ATM/Debit card doesn't charge for access at foreign ATMs. Nice.

But the bank account only pays 0.15% so there's that.

To work around this low rate, I keep a modest pile of cash in SWVXX (Schwab Value Advantage - Investor Shares). It pays 1.0%, but has annual expenses of 0.35% so that's still paying 0.65% - better than the bank account.

One downside to SWVXX is that when you need the cash it's not there instantly like the bank account. You have the sell shares in SWVXX.
 
If they keep cranking up the money market rates, there's no reason my chicken should go hungry any more.
 
FIRE'd@51 said:
Vanguard's settlement fund (VMFXX) is 1.05%.
Click to expand...

and if they could goose it a bit more then I could get rid of my online savings account... one less vendor/account to deal with... would keep my cash at Vanguard and have a monthly "paycheck" transfer to the credit union account that I use to pay my bills.
 
pb4uski said:
and if they could goose it a bit more then I could get rid of my online savings account... one less vendor/account to deal with... would keep my cash at Vanguard and have a monthly "paycheck" transfer to the credit union account that I use to pay my bills.
Click to expand...

Note you can get about .1 percent more with prime money market over federal money market, it is just a couple of clicks to move the money. prime is 1.18%
 
meierlde said:
Note you can get about .1 percent more with prime money market over federal money market, it is just a couple of clicks to move the money. prime is 1.18%
Click to expand...

I closed out my online savings accounts and moved money to VG
 
kaneohe said:
Can you write checks on the settlement fund? or autopay bills from there?
Click to expand...
No, but as mentioned above, with a couple of clicks, you can move money you don't need for settlement to the Prime money market fund (VMMXX) and earn about 10 basis points more. There you can write checks for $250 or more and transfer money electronically to a linked bank account to autopay bills or write checks for less than $250.
 
It wasn't long ago that Schwab's "High Yield" checking account was paying 0.01%. This is why I keep my excess cash at Ally and transfer it to Schwab once per month for expenses.
 
I currently keep most of the cash’s here that would otherwise be a time the brokerage in a Synchrony Bank high yield account earning 1.3%. I first set this up many years ago when most money market funds were yielding 0.07% and the safety issues of money market funds hadn’t been resolved. Now money market funds are yielding a lot more, and are considerably safer. But the high yield FDIC insured accounts still beat. It takes a quick online entry and only a day or two to transfer funds, so I’m sticking with this system.

Annual spending funds get transferred to American Express bank and monthly needs transferred to bank account automatically.
 
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kaneohe said:
Can you write checks on the settlement fund? or autopay bills from there?
Click to expand...
You can write checks on the settlement fund if you are eligible for the Vanguard Advantage account. It also has bill pay.

I believe this account requires Voyager Select status or higher.
 
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catotx said:
You can write checks on the settlement fund if you are eligible for the Vanguard Advantage account. It also has bill pay.

I believe this account requires Voyager Select status or higher.
Click to expand...

Agreed. I have a Vanguard Advantage account. It's basically a free checking account.

I move the settlement fund over to the Prime Money Market (1.19%) when I don't need the money available for the checking account.

In my financial simplification project, I dumped my Ally checking/savings and combined it into Vanguard where 95% of our retirement money is already located. I still have a local regional bank where we do most of our checking account transactions through, but leave very little extra money due to pathetic interest rates. It takes two days to get money from Vanguard to my local checking. If I need really fast money, I can just write a check out of the Vanguard account.
 
meierlde said:
However it does not have checkwriting for some reason.
Click to expand...

I suspect it has something to do with the settlement fund being used to collateralize certain trading activities, e.g. selling cash-secured puts.
 
FIRE'd@51 said:
I suspect it has something to do with the settlement fund being used to collateralize certain trading activities, e.g. selling cash-secured puts.
Click to expand...
I don't believe that is the reason, because, as mentioned previously, check writing is available on the settlement fund for Voyager Select and Flagship clients.

I think the reason is cost, since providing the checking facility costs Vanguard money.
 
catotx said:
I don't believe that is the reason, because, as mentioned previously, check writing is available on the settlement fund for Voyager Select and Flagship clients.
Click to expand...
As I understand it, to get the check writing capability, you must open an Advantage account which also includes a credit card. This would allow a "margin" call incurred by writing checks to be charged to the credit card.
 
FIRE'd@51 said:
As I understand it, to get the check writing capability, you must open an Advantage account which also includes a credit card. This would allow a "margin" call incurred by writing checks to be charged to the credit card.
Click to expand...
I don't think the account offers a credit card.
 
kaneohe said:
Now Schwab says they are changing to make the sweep account a bank acct. When prodded, they admit the yield will be 0.15% w/ FDIC protection. The words suggest (but don't say directly) that they are forced by govt. rules to do this.
Click to expand...
A sweep account is not "forced by govt. rules" to be a "bank acct. w/ FDIC protection". If Schwab said that, then they are lying, and are trying to trick people into not realizing that some sweep account are not a bank acct. at all, but rather a money market account. Do they really think they can pull the wool over people's eyes?
 
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