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Can my MMF produce a lower Yield?
Old 01-22-2010, 04:03 PM   #1
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Can my MMF produce a lower Yield?

I have a small MMF at USAA. Just looked at it and here is the current dope:

USAA Mutl 7-Day Yield:
As of 01/21/2010 0.01%
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Old 01-22-2010, 04:17 PM   #2
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Some money market funds have closed to new money, largely because they can't even generate a positive yield after expenses. How pathetic is that?
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Old 01-22-2010, 04:39 PM   #3
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It can go to 0.00% and be just like a non-interest earning checking account.
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Old 01-23-2010, 11:27 AM   #4
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There is no rule of law or nature that says investments, including Money Market Funds, need to pay a positive return. Fund companies are subsidizing their MMFs to keep even the paultry 1bp yield positive. That can't and won't last forever. If the Fed stays at zero indefinitely, you'll eventually see negative returns for these funds, possibly implemented via a new fee structure ($10 for electronic transfer, etc).

Lets hope the economy heals sufficiently to support positive real interest rates soon.
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Old 01-23-2010, 11:54 AM   #5
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Right. And I'm not sure that we should expect Money Market Mutual funds to be a better deal than regular checking accounts.

In the olden days, they provided more yield because they didn't pay FDIC premiums and they weren't subject to reserve requirements. (I think that's the reason, maybe someone here can correct me.) But, when the gov't extended deposit insurance to MMMFs, it seems that the rationale for higher yields went away.

I'm still waiting for some indication of which way the gov't will go on this one. Are they going to sweep them into the FDIC somehow? or are they going to say "No more emergency guarantees."?
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Old 01-23-2010, 12:04 PM   #6
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Actually, in the bad old days of a 1% fed funds rate after the dot com bust, there were a few money market funds that broke a buck because the expenses of the fund was in excess of interest earned and the fund company did not subsidize it.
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Old 01-23-2010, 04:23 PM   #7
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I'm still waiting for some indication of which way the gov't will go on this one. Are they going to sweep them into the FDIC somehow? or are they going to say "No more emergency guarantees."?
This is a bit off topic, but the idea that a money market fund can never lose money is a problem that needs to be fixed. But now that the government stepped in and guaranteed them all once (out of necessity in my view) it's not credible for the government to simply say "we won't do it again". And if the government IS going to extend a guarantee, then they'll need to require MMF to hold some kind of reserve against potential losses, which means lower yields in the future.
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Old 01-23-2010, 07:29 PM   #8
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My checking account is actually paying 10X what my MMf is paying. How strange is that?

Checking act 0.10%
MMF 0.01%
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Busting the Buck
Old 01-23-2010, 10:29 PM   #9
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Busting the Buck

Well it's been going on two years I think, since the MMF sweep account for my Ameriprise brokerage account 'busted the buck'. The big guys all got advanced notice and pulled their funds out which effectively left the rest of us holding the bag. Of course, class action and arbitration continues. Reserves are being kept frozen to cover legal costs. In a number of partial distributions<including 3% from Ameriprise> I'm up to about 95% of the funds I had 'invested' out. I guess the funny part is the money was in the sweep account because I sold some stocks I thought were risky. Theoretically at some point I might actually get 100% plus no interest for a couple yrs. At this point I'm down ~5%+interest.

So yes it can get worse than .01%...

Of course, once I get the final distribution and funds are unfrozen - Good-bye Ameriprise.
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Old 01-24-2010, 12:09 AM   #10
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There are many 1.5% or so savings accounts, one example is Discoverbank. I took pretty much all my MM balances in taxable account and moved it to several of these. I haven't down anything yet with my IRA because of the extra hassle, but I may if very low rates continue. Safety goes up, return goes up. Hard to beat.

Ha
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Old 01-24-2010, 08:37 AM   #11
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One month ago we did a strange thing with our money market fund. Had a windfall of about $200K back in November and had no logical place to put the money. Finally found a money market fund at 1.75%. After a month of pondering this problem of low returns, we decided to take a different approach. Bought another house for $205K and are in the process of renovating it to the tune of another $40K. However, it should be worth about $375 in about 4-5 years when the market comes back. That's putting your money to work.
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Old 01-24-2010, 09:57 AM   #12
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Quote:
Originally Posted by JOHNNIE36 View Post
One month ago we did a strange thing with our money market fund. Had a windfall of about $200K back in November and had no logical place to put the money. Finally found a money market fund at 1.75%. After a month of pondering this problem of low returns, we decided to take a different approach. Bought another house for $205K and are in the process of renovating it to the tune of another $40K. However, it should be worth about $375 in about 4-5 years when the market comes back. That's putting your money to work.
That is exactly what a 0% Feds Funds Rate is designed to get you to do.



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There are many 1.5% or so savings accounts, one example is Discoverbank. I took pretty much all my MM balances in taxable account and moved it to several of these. I haven't down anything yet with my IRA because of the extra hassle, but I may if very low rates continue. Safety goes up, return goes up. Hard to beat.

Ha

But that's what I'm doing.
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Old 01-24-2010, 10:12 AM   #13
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But, when the gov't extended deposit insurance to MMMFs, it seems that the rationale for higher yields went away.
I missed that. Very interesting. Thanks.
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Old 01-24-2010, 01:35 PM   #14
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Originally Posted by brewer12345 View Post
Actually, in the bad old days of a 1% fed funds rate after the dot com bust, there were a few money market funds that broke a buck because the expenses of the fund was in excess of interest earned and the fund company did not subsidize it.
You needn't go back that far, it happened in 08 also.
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Old 01-24-2010, 01:37 PM   #15
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Originally Posted by haha View Post
There are many 1.5% or so savings accounts, one example is Discoverbank. I took pretty much all my MM balances in taxable account and moved it to several of these. I haven't down anything yet with my IRA because of the extra hassle, but I may if very low rates continue. Safety goes up, return goes up. Hard to beat.

Ha

I did the same, but with dollarsavingsdirect (a unit of Emigrant bank). Moved ~360k out of Vanguard MM.
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Old 01-24-2010, 05:26 PM   #16
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I did the same, but with dollarsavingsdirect (a unit of Emigrant bank). Moved ~360k out of Vanguard MM.
did you move the entire 360k to dollarsavingsdirect? i suspect Vanguard MM to be safer (depending on how you structured your account registration(s)).
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Old 01-24-2010, 07:28 PM   #17
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Good question. Its separate accounts so we're FDIC insured up to 500k. (according to their web site)
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Old 01-30-2010, 05:31 AM   #18
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End result Ameriprise Reserve Fund sweep account:
Sep 2008 busted the buck all funds frozen.
Several partial distributions during last year.
Received the final distribution yesterday which totalled exactly 100% of funds after deducting off part of the Ameriprise advance of 3cents a share to make up any shortfall. Without the advance the amount would have been between 98-99%.
So about a year & 5months with no interest on the funds + aggravation of freezing the funds and unknown value of shares.
Currently Ameriprise Sweep account paying .02%, so NOT exactly a huge loss of interest over the year+.
Now, I said I'd close account, but where or where do I put the money when I do.
Arghhh.
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Old 01-30-2010, 06:52 AM   #19
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Originally Posted by JustNtime View Post
Now, I said I'd close account, but where or where do I put the money when I do.
Arghhh.
Maybe somewhere with a better history of allowing you to withdraw your money when you want it?
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Old 01-30-2010, 07:57 AM   #20
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or somewhere here Best Nationally Available High APY Liquid Accounts
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