Self overdraft protection in Fidelity

[Bugeater]

Heading into retirement - I'm looking at closing local credit union checking/savings and consolidating to Fidelity Cash Mgmt Acct. Will be moving out of state, so seems like a good time to get this going.

Fidelity has the option to keep $0 in the CMA and then automatically transfers from brokerage account where I could keep $ in a slightly higher returning account.

While the mechanics sound great and I love the convenience, I wonder about potential security issues - and wondered if I should not activate the self overdraft protection and just manually move $ over.

For those using this Fidelity feature - have you ever experienced or heard of any issues?

TIA

 

[tulak]

I consolidated at Fidelity and use a brokerage account for cash management.

I looked at their cash management account, but didn’t see the point in using that account over a standard brokerage account. With the brokerage account, I can select a default fund for the cash balance (which unfortunately pays next to nothing right now), something you can’t do with the cash management account.

The only other difference that I found was that the cash management account is FDIC insured and the brokerage account is insured with SIPC.

 

[tulak]

I should add that I use a separate brokerage account that is for cash management only. No investments in this account and no overdraft protection. I want the transaction to be denied if there’s not enough cash in the account.

 

[OldShooter]

We have a similar arrangement at Schwab. There is a joint Schwab Bank checking account that only I use (DW has her own). Its overdraft backup is a cash brokerage account that rarely has more than $10K in it and, importantly, only the actual swept cash balance in that account is available to cover overdrafts. An overdraft will not cause securities to be sold. So I feel pretty comfortable with it.

Maybe Fido can give you more or less the same thing.

 

[Bugeater]

An overdraft will not cause securities to be sold.

Thanks - yes maybe this would give me that extra peace of mind- will need to investigate if Fidelity has that feature.

The CMA gives me the checks/debit cards and the reimbursement of ATM fees which is why I wanted that separate account (plus the option to sever the link between the two should I want to keep them separate).

 

[OldShooter]

Thanks - yes maybe this would give me that extra peace of mind- will need to investigate if Fidelity has that feature.

The CMA gives me the checks/debit cards and the reimbursement of ATM fees which is why I wanted that separate account (plus the option to sever the link between the two should I want to keep them separate).

Yes. This business is so competitive that I'd be surprised if Fido isn't very similar to Schwab. FWIW, Schwab's debit card reimburses ATM fees worldwide and there is no FTF.

 

[Bamaman]

I keep a Wells Fargo checking account and it's attached to a $10K personal line of credit.

If my checking account goes into the negative, it's automatically covered by a transfer from the line of credit $100 by $100. The service charge yearly is just a few dollars.

That way I don't have to closely watch my checking balances, and I don't get hit with big overdraft charges. I don't use it often, however. It's just for peace of mind.

Wells Fargo tried to cancel these lines of credit last month, but I assume the customers raised cain. They backed off on cancelling the program just before they were to expire.

Wells Fargo (and most big chains of national banks) pretty much suck as banks. But I stay with them because their checking account and ATM systems are just so good.

 

[OldShooter]

I used to do that too, before I moved to Schwab. DW still has a Wells account and her backup credit line is still there. IIRC, though, a relatively recent change where any draw on the credit line incurs some kind of nasty transaction fee, like $25. You might want to ask them about this so you aren't surprised if a fee pops up.

Re ATMs, I use my Schwab checking's debit card at any ATM in the world and they refund the ATM fee. So that's about the best ATM "system" one can get.

 

[qwerty3656]

I have (as you described) a Fidelity cash management account with a 0 balance that moves money from my brokerage account as needed. I have all my bill payments setup in the cash management account. I've done this for several years w/o any problems. I will say that I only use the cash management account for bill payment. If I need to transfer money in/out of Fidelity its to/from my brokerage account.

I'm not sure of the advantage of using the cash management account (someone said FDIC insured, but I don't keep a balance in there). This is just how the Fidelity rep told me to set up years ago when I opened an account.

 

[tulak]

I have (as you described) a Fidelity cash management account with a 0 balance that moves money from my brokerage account as needed. I have all my bill payments setup in the cash management account. I've done this for several years w/o any problems. I will say that I only use the cash management account for bill payment. If I need to transfer money in/out of Fidelity its to/from my brokerage account.

I'm not sure of the advantage of using the cash management account (someone said FDIC insured, but I don't keep a balance in there). This is just how the Fidelity rep told me to set up years ago when I opened an account.

Why not use bill payment from the brokerage account?

I have a Schwab bank account for the debit card. You can’t beat it for travel, since there are no foreign transaction fees and they reimburse ATM charges. I don’t have any other Schwab accounts with a balance. I use this account solely for ATM transactions.

Btw, I seem to recall that the Fidelity debit card charges foreign transaction fees only on cash withdrawals. But I could be wrong.

 

[audreyh1]

Heading into retirement - I'm looking at closing local credit union checking/savings and consolidating to Fidelity Cash Mgmt Acct. Will be moving out of state, so seems like a good time to get this going.

Fidelity has the option to keep $0 in the CMA and then automatically transfers from brokerage account where I could keep $ in a slightly higher returning account.

While the mechanics sound great and I love the convenience, I wonder about potential security issues - and wondered if I should not activate the self overdraft protection and just manually move $ over.

For those using this Fidelity feature - have you ever experienced or heard of any issues?

TIA

I deliberately chose not to have overdraft protection in case something goes horribly wrong due to a stolen ATM card and credentials.

 

[audreyh1]

I consolidated at Fidelity and use a brokerage account for cash management.

I looked at their cash management account, but didn’t see the point in using that account over a standard brokerage account. With the brokerage account, I can select a default fund for the cash balance (which unfortunately pays next to nothing right now), something you can’t do with the cash management account.

The only other difference that I found was that the cash management account is FDIC insured and the brokerage account is insured with SIPC.

International no fee access via ATM. That was the main benefit.

I prefer to keep bill paying separate from my investment accounts.

 

[qwerty3656]

Why not use bill payment from the brokerage account?

I have a Schwab bank account for the debit card. You can’t beat it for travel, since there are no foreign transaction fees and they reimburse ATM charges. I don’t have any other Schwab accounts with a balance. I use this account solely for ATM transactions.

Btw, I seem to recall that the Fidelity debit card charges foreign transaction fees only on cash withdrawals. But I could be wrong.

The only thing I can think of is it is nice to have my bill pay layed out in a separate account, but I agree with you that you would be in the same place just using the brokerage account. Also, fidelity reimburses ATM as well - I don't know about foreign fees.

 

[Bugeater]

I deliberately chose not to have overdraft protection in case something goes horribly wrong due to a stolen ATM card and credentials.

That is logical - I did a chat with Fidelity rep who said there is no liability for fraudulent charges against debit - but would take some time to resolve. Am thinking that maybe the best way to go is to manually move money vs the automatic overdraft. Not as efficient but adds an additional check point.

 

[tulak]

I deliberately chose not to have overdraft protection in case something goes horribly wrong due to a stolen ATM card and credentials.

Same here. I make sure there's enough in my checking account.

International no fee access via ATM. That was the main benefit.

Thanks. I knew there was a reason, but I couldn't remember.

I prefer to keep bill paying separate from my investment accounts.

There's no reason you can't have multiple brokerage accounts. I would never mix investments with an account I'm using for cash management. I would also not have a debit card against an account with investments.

I chose a brokerage account due to the money market sweep for the cash balance. You can do something similar with the cash management account, but why bother? And if I remember correctly, you'd still need to sweep the cash management account balance into a brokerage account. Seems like extra work with no benefit.

 

[audreyh1]

The only thing I can think of is it is nice to have my bill pay layed out in a separate account, but I agree with you that you would be in the same place just using the brokerage account. Also, fidelity reimburses ATM as well - I don't know about foreign fees.

Yes, from the cash management account Fidelity charges no foreign transaction fees for ATM withdrawals as well as reimbursing ATM fees.

I assume the ATM rules are the same from a brokerage account? But personally I prefer to have bill pay and ATM withdrawals from a separate account than where my investments are.

 

[audreyh1]

That is logical - I did a chat with Fidelity rep who said there is no liability for fraudulent charges against debit - but would take some time to resolve. Am thinking that maybe the best way to go is to manually move money vs the automatic overdraft. Not as efficient but adds an additional check point.

I occasionally schedule a deposit. I used to have an automatic monthly deposit drawn from a savings account but my expenses were so lumpy I just went to occasionally scheduling a transfer.

When we get ready to go on an international trip, I prepay all bills and put the travel needs chunk of cash into the account.

 

[audreyh1]

Same here. I make sure there's enough in my checking account.



Thanks. I knew there was a reason, but I couldn't remember.



There's no reason you can't have multiple brokerage accounts. I would never mix investments with an account I'm using for cash management. I would also not have a debit card against an account with investments.

I chose a brokerage account due to the money market sweep for the cash balance. You can do something similar with the cash management account, but why bother? And if I remember correctly, you'd still need to sweep the cash management account balance into a brokerage account. Seems like extra work with no benefit.

The cash management account itself is already brokerage account. You can own whatever mutual funds you want in there. You can store some funds in higher paying MM funds if you want, and they will be automatically drawn from if needed. I did this when MM funds were paying something. You can own other securities too. It is essential a brokerage account with an FDIC insured bank account as the core account.

 

[tulak]

The cash management account itself is already brokerage account. You can own whatever mutual funds you want in there. You can store some funds in higher paying MM funds if you want, and they will be automatically drawn from if needed. I did this when MM funds were paying something. You can own other securities too. It is essential a brokerage account with an FDIC insured bank account as the core account.

Got it. Still seems unnecessary, since a brokerage account has all the same functionality without the ‘cash management’ label and either way you end up with multiple accounts if you want to keep investments separate. But I’m also not trying to be difficult. [emoji2]

OP can decide what works best for him.

 

[Bugeater]

OP can decide what works best for him.

Agree that maybe it's not necessary but I think I like the separation of the active spending account and the active investment account. However it's really just a mental accounting thing for me I think.

Thanks all for the input. Really helps me think through things from different perspectives. That's why I enjoy this site so much.