Fidelity money market sweep fund goes away.

[Neill]

This is annoying. Today I got a letter saying the municipal market fund that I sweep spare cash to is going away. The SEC has changed a bunch of rules to allow the fund to charge various liquidity fees in times of stress.
I found this info on it:

https://www.fidelity.com/bin-public...y-market-reform-communication-august-2014.pdf

I don't really understand why the fund has to go away but it is. This is really annoying because after conversions the marginal tax rate for income jumps to 30% and then 35% (after a very small window and the child tax credit phasing out) for me so hiding any kind of income is important.
I try not to keep to much cash and of course interest rates are terrible currently but I do have quite a bit of cash this year to pay my last year of working taxes. I do like to only buy new stuff when I have > $5k in spare cash to lower transaction costs.
Anyone understand why this funds are for the chop?

 

[audreyh1]

I switched to a different money market fund about a year ago when I got notice of major changes to these funds. I'm not surprised to see consolidation. SEC requirements on money market funds have changed.

Since the muni MM is paying almost nothing, taxes probably aren't a major concern right now.

I keep very little in money market funds these days. I switched to a government cash reserve type MM which doesn't float, but I keep some in a short term muni bond fund, and move large sums over to an FDIC insured savings account yielding 1%.

 

[mathjak107]

which muni money mkt fund is it ?

i use ftexx as a core , is that going away ?

 

[audreyh1]

When (if) money market funds start paying a decent interest rate, I'll reevaluate my strategy.

But I started keeping a minimal amount in money market funds in 2010 (after the Fed let their MM protection expire) for a couple of reasons:
- they weren't paying nuthin'
- they really weren't safe. The 2008 crisis exposed serious credit risks, and I could get FDIC protection and a much higher interest rate if I was willing to do my own"sweeping" in and out of a linked savings account.

Plus I knew rule changes were coming.

It has taken a while though.

 

[audreyh1]

which muni money mkt fund is it ?

i use ftexx as a core , is that going away ?

If you click on the municipal link here:
https://www.fidelity.com/mutual-funds/fidelity-funds/money-market-funds-statement
I believe you get to FTEXX as an option.

And I believe that fund could be subject to redemption restrictions/fees.

Here is an earlier communication outlining upcoming changes https://www.fidelity.com/bin-public...documents/MMF_Compare-stable-floating-nav.pdf

None of the retail Fidelity money market funds implement a floating NAV.

 

[mathjak107]

thanks .

it looks like if fund assets fall below a certzain level they can impose fees or restrict redemption's but at the moment no real changes .

 

[audreyh1]

thanks .

it looks like if fund assets fall below a certzain level they can impose fees or restrict redemption's but at the moment no real changes .

Right - it's really for dealing with 2008 type conditions and unlikely.

Remember in 2008 the Fed had to step in and provide an FDIC type guarantee to prevent a bank run on MM funds that had actually already started. This was one of the extraordinary steps they took. With the short-term credit markets frozen, businesses were caught by surprise not being able to fund their monthly operations such as payroll. A critical liquidity relationship between MM funds and commercial enterprises was breaking. Businesses suddenly halted spending, conserving as much cash as they could. A recession resulted, even with the MM funds protected.

US companies no longer assume they can go to the short-term credit markets to fund their monthly operations.

MM funds are now far more constrained if they don't float the NAV.

 

[mathjak107]

i already had a money market fund fail in 2008 and we lost a few cents . it took quite a while to get the last remaining bits out too . but we did lose about 2% or so .the fund held Lehman paper

 

[audreyh1]

i already had a money market fund fail in 2008 and we lost a few cents . it took quite a while to get the last remaining bits out too . but we did lose about 2% or so .the fund held Lehman paper

Oh right, I forgot you owned one of the two? MM funds that broke the buck in 2008.

Those funds almost caused a panic. Actually, the panic was starting and the Federal Reserve and the Treasury Department had to take drastic measures.

 

[mathjak107]

yep , i am the same guy who retired the day before the yuan revaluation kicked off the down turn ha ha ha
i have had my fidelity account for 30 years ever since it was a fidelity usa account so i still have my old fidelity cash reserves account which is now the gov't money market .

we don't use it much and we have been using my wife's original ftexx core as our everything account .

i think at this point we will just keep 10-12k for some bill paying in ftexx , put the rest in my gov't money market and transfer in money as needed .

that way we can not worry ever getting locked out from ftexx .

 

[meierlde]

Vanguard sent a letter that sweep accounts at Vanguard would move to a Federal Money market fund by Oct. Again due to the issues of 2008 and new fed regulations. The concern is liquidity of funds having other than US treasury holdings, in times of stress. As long as interest rates stay low it will not make a lot of difference but if they go up the federal fund will pay less than the current prime money market. (Tax free pays almost nothing also)

 

[audreyh1]

yep , i am the same guy who retired the day before the yuan revaluation kicked off the down turn ha ha ha
i have had my fidelity account for 30 years ever since it was a fidelity usa account so i still have my old fidelity cash reserves account which is now the gov't money market .

we don't use it much and we have been using my wife's original ftexx core as our everything account .

i think at this point we will just keep 10-12k for some bill paying in ftexx , put the rest in my gov't money market and transfer in money as needed .

that way we can not worry ever getting locked out from ftexx .

Just curious as to why you would use that instead of the Fidelity Cash Management Account, FDIC insured, paying 0.07% interest instead of the 0.01% or less in the MM funds. No redemption constraints. Bill pay. Great ATM card with fees reimbursed and even a quite low (1%) foreign transaction fee for overseas ATM withdrawals.

P.S. Your timing is indeed amazing. I was kind of hoping to watch you travel the rising glide path.

I was considering letting my equity exposure gradually rise. But then I decided to wait until we had a major sell off before implementing that idea. Didn't see a point in starting with the markets at all time highs like they were in May.

BTW I retired late 1999, so I have a few battle scars myself.

 

[Neill]

which muni money mkt fund is it ?

i use ftexx as a core , is that going away ?

The letter said I am going to be moved out of this and into a government money market instead. So it looks like I will end up in a taxable money market. Maybe I can still use the municipal money market if I opt back into it later with full knowledge it might have redemption fees etc. Letter just said they are moving me.
I faced large margin tax rates when working and still face them after conversions while retired. I don't want any taxable interest I can avoid.
Hopefully after I pay my last big tax bill in Apr I can keep the cash somewhat lower.
Looks like they 'helped' me right out of a product I liked.

 

[audreyh1]

The letter said I am going to be moved out of this and into a government money market instead. So it looks like I will end up in a taxable money market. Maybe I can still use the municipal money market if I opt back into it later with full knowledge it might have redemption fees etc. Letter just said they are moving me.
I faced large margin tax rates when working and still face them after conversions while retired. I don't want any taxable interest I can avoid.
Hopefully after I pay my last big tax bill in Apr I can keep the cash somewhat lower.
Looks like they 'helped' me right out of a product I liked.

How much are you making on your MM fund interest? Is it really more than a few dollars a year? Interest rates in MM at Fidelity are .01% or less! $100,000 sitting in a MM for a year, and you still make only $10!

Call Fidelity - they'll switch you to what you want of the choices remaining.

Personally, I use FSTMX limited term muni income for some of my short-term funds, and high yield savings accounts paying .9 to 1.05% for the most immediate cash needs.

 

[Neill]

How much are you making on your MM fund interest? Is it really more than a few dollars a year? Interest rates in MM at Fidelity are .01% or less! $100,000 sitting in a MM for a year, and you still make only $10!

Call Fidelity - they'll switch you to what you want of the choices remaining.

Personally, I use FSTMX limited term muni income for some of my short-term funds, and high yield savings accounts paying .9 to 1.05% for the most immediate cash needs.

Last year it looks like the cash generated $6. I have no idea how interest rates are going to change this year. Of course I generated about $26k in tax free interest overall because taxable interest kills me.
The core sweep account was nice. I didn't have to worry about this interest and now I do.

 

[mathjak107]

Just curious as to why you would use that instead of the Fidelity Cash Management Account, FDIC insured, paying 0.07% interest instead of the 0.01% or less in the MM funds. No redemption constraints. Bill pay. Great ATM card with fees reimbursed and even a quite low (1%) foreign transaction fee for overseas ATM withdrawals.

P.S. Your timing is indeed amazing. I was kind of hoping to watch you travel the rising glide path.

I was considering letting my equity exposure gradually rise. But then I decided to wait until we had a major sell off before implementing that idea. Didn't see a point in starting with the markets at all time highs like they were in May.

BTW I retired late 1999, so I have a few battle scars myself.

the difference is so small and the funds so transient since all bills are paid through it that i never bothered . the cma account is identical to what i have as far as all the perks .

i guess because i started with the usa account which was their cma account only the core account used changed .

 

[audreyh1]

the difference is so small and the funds so transient since all bills are paid through it that i never bothered . the cma account is identical to what i have as far as all the perks .

i guess because i started with the usa account which was their cma account only the core account used changed .

Just that the cash is not FDIC insured and you are paid a much lower interest rate?

 

[audreyh1]

Last year it looks like the cash generated $6. I have no idea how interest rates are going to change this year. Of course I generated about $26k in tax free interest overall because taxable interest kills me.
The core sweep account was nice. I didn't have to worry about this interest and now I do.

I'm not expecting MM rates to go up any time soon, and they've an incredibly long way to go before they can touch rates paid by FDIC insured accounts. But if they do, I will be reevaluating where my cash lives.

 

[mathjak107]

yeah , you are correct , i am just to lazy .

 

[audreyh1]

Last year it looks like the cash generated $6. I have no idea how interest rates are going to change this year. Of course I generated about $26k in tax free interest overall because taxable interest kills me.
The core sweep account was nice. I didn't have to worry about this interest and now I do.

I can kind of understand not wanting to pay any tax on $6 at 0.01% from a muni MM, versus $600 at 1% for the same amount deposited in a savings account, but taxable at a very high marginal rate. But after all is said and done, don't you end up with quite a bit more money in your pocket in the second case even after taxes? Just curious.

 

[Neill]

I can kind of understand not wanting to pay any tax on $6 at 0.01% from a muni MM, versus $600 at 1% for the same amount deposited in a savings account, but taxable at a very high marginal rate. But after all is said and done, don't you end up with quite a bit more money in your pocket in the second case even after taxes? Just curious.

If I had say $30k in cash that I didn't need for something then I would just buy an individual muni bond. That's were the tax free interest comes from. The rest of the money just rains in from dividends etc and I let it build up to invest when it reaches a threshold. I am unsure if I will do this while retired because that will mean I am not even spending portfolio growth.
I only have about $40k currently in cash that I want to build up to $80k to pay taxes in Apr.
I don't see how I get a better deal than buying a muni-bond. I can't buy one now as I need the cash.

 

[audreyh1]

That's one of the things I use a high yield savings account paying 1% for - to hold funds for paying taxes and quarterly estimated taxes.

But most of my income is long-term capital gains and qualified dividends, so my marginal tax bracket is low. Although most of my ordinary income is subject to the 26% AMT rate. I guess that's really my tax bracket.