Vanguard FDIC Insured "Cash Deposit Account" for settlement Funds

[Rickt]

Vanguard's NEW FDIC Insured "Cash Deposit Account" for settlement Funds

Wondering what the members here think about Vanguard's new "FDIC Insured Cash Deposit Account" for the money in Settlement Fund (VMFXX)?

Here's a link for this new settlement account :
https://investor.vanguard.com/inves...N:POS01:XX&CMPSP=3418932789&EMGRP=RT047040187

It currently yields 3.25% APY and money in this account is automatically FDIC insured upto $1.25M ($2.5M for Joint Accounts).

How does it compare to "Vanguard Federal Money Market Fund" (VMFXX) which is not FDIC insured because it is a mutual fund. (Current 7 Day SEC yield = 4.25%).

I don't keep too much money (usually less than $100K) in the settlement fund for too long, wondering if I should switch to this new "Cash Deposit Account"?

Thank you!

 

[Kork13]

Is FDIC insurance 25% better than SIPC insurance? Going to the cash account will drop your earnings from 4.25% to 3.25%. Pretty simple calculus in my eyes.

I would consider it if VMFXX returns drop below the returns for the cash account ... or if the cash account had some other type of benefit beyond simply being the clearinghouse account for my brokerage. Otherwise, why complicate my brokerage any further?

 

[Rickt]

Makes sense Kork13, Thanks!

 

[SecondCor521]

VMFXX isn't FDIC insured, but it invests in very short term US government securities and equivalents. I'd consider those investments even safer than FDIC.

 

[VanWinkle]

VUSXX (Treasury Money Market) has an SEC yield of 4.70% as of this morning and would be considered a very safe money market fund with tax benefits in states with income taxes. I would use it with the increased yield and tax benefits.

 

[disneysteve]

My Ally account pays 3.75%. If I want FDIC insurance I use that.

 

[Rickt]

Thanks VanWinkle and Disneysteve.
I guess Vanguard started the new Cash deposit account in order to alleviate fear of loss due to recent bank failures.

 

[OldShooter]

... I guess Vanguard started the new Cash deposit account in order to alleviate fear of loss due to recent bank failures.

My guess is that they decided to take a page out of Schwab's book and sweep to a lower interest rate product so they could make some money on the client's float. Schwab touts the very-marginally-valuable FDIC insurance, too.

I'm too lazy to go back and find the thread, but IIRC someone recently mentioned that when they buy a CD VG will take the money three days early. Or maybe it was Fido. Regardless, more profit on float.

You can steal a lot of salami by taking it in slices too small to fight over.

 

[audreyh1]

Fido doesn’t ”take” the funds until the CD is issued. It’s still earning interest in your core account once the order is filled and until the CD is issued. It’s been earmarked for a filled order and thus not available for other trades. You can even have the funds in a higher earning MM fund at Fidelity, Fidelity automatically pulls from additional MM funds as needed to settle trades, and they won’t be pulled until the trade settles/CD is issued.

 

[OldShooter]

Fido doesn’t ”take” the funds until the CD is issued. It’s still earning interest in your core account once the order is filled and until the CD is issued. It’s been earmarked for a filled order and thus not available for other trades. You can even have the funds in a higher earning MM fund at Fidelity, Fidelity automatically pulls from additional MM funds as needed to settle trades, and they won’t be pulled until the trade settles/CD is issued.

OK. My speculation was wrong, then. I should have gone back to find the thread.