Vanguard to end cash management service

[FIREd_2015]

Article in the WSJ this morning saying Vanguard is ending their cash management service on July 31. The article also says the firm is exploring other ways it can make cash-management services available to clients but no decision is in the works.

Unfortunately, the article is behind a paywall but here is the link for those with access.

https://www.wsj.com/articles/vangua...ment-service-for-larger-customers-11551639935

I hope Fidelity doesn't follow suit since I have a cash management account with them.

 

[RunningBum]

Some bogleheads aren't too happy.

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=274303

 

[Spock]

I was expecting the major brokerages to end cash management after the Robinhood brokerage misfire where Robinhood came out with checking/savings accounts and claimed SPIC insurance coverage. Shutting down Robinhood kind of tore the veil that other brokerages are hiding behind.


https://www.bloomberg.com/news/arti...ns-about-robinhood-s-new-product?srnd=premium

 

[W2R]

Well, apparently this won't affect me personally. Vanguard will continue to provide their money market accounts. They just won't automatically pay your bills from them.

I pay my bills by automatic deductions from my bricks'n'mortar checking account. I withdraw any money I might need for that from Vanguard, during the first week in January when I make my annual withdrawal.

I guess I don't see what the big deal is. But then, I might if used their bill paying services.

 

[REWahoo]

I guess I don't see what the big deal is. But then, I might if used their bill paying services.

+1

I considered using it when I retired in 2005 but since I already had auto bill paying set up at my bank I decided to stick with it. Instead, I have an automatic transfer from my Vanguard MMkt account (TIRA) to my bank checking acct every two weeks, which mimics the paycheck I once got. That's worked great for almost 14 years now since I have the ability to control how much I withdraw by skipping "paydays" or manually withdrawing more if needed.

Vanguard changed the rules a few years ago and no longer allows auto transfers more frequently than once a month. Fortunately they grandfathered those of us who had more frequent withdrawals, although they don't allow any changes to what was in place at the time.

 

[gwraigty]

I was expecting the major brokerages to end cash management after the Robinhood brokerage misfire where Robinhood came out with checking/savings accounts and claimed SPIC insurance coverage. Shutting down Robinhood kind of tore the veil that other brokerages are hiding behind.


https://www.bloomberg.com/news/arti...ns-about-robinhood-s-new-product?srnd=premium

What other brokerages are claiming that their cash management accounts are protected by SPIC? *Correction: SIPC, thank you to COcheesehead.* Fidelity doesn't claim any such thing.

 

[COcheesehead]

SIPC
Securities Investor Protection Corp

 

[Spock]

What other brokerages are claiming that their cash management accounts are protected by SPIC? *Correction: SIPC, thank you to COcheesehead.* Fidelity doesn't claim any such thing.

From Fidelity's page:

What Fidelity accounts are covered?

All Fidelity brokerage accounts are covered by SIPC. This includes money market funds held in a brokerage account since they are considered securities. Learn more about SIPC coverage at www.sipc.org
​

And then to distinguish between cash management and brokerage:

Does FDIC insurance coverage protect investments in my Fidelity® Cash Management Account? No, securities held in a brokerage account are not eligible for FDIC insurance coverage. However, brokerage accounts is protected by Securities Investor Protection Corporation (SIPC). <blah blah blah SIPC description> Money market funds held in a brokerage account are considered securities.​

The veil/fuzziness is checking/savings account-like direct auto-bill pay and ACHs from what are supposed to be securities accounts.

 

[audreyh1]

What other brokerages are claiming that their cash management accounts are protected by SPIC? *Correction: SIPC, thank you to COcheesehead.* Fidelity doesn't claim any such thing.

Exactly!

Fidelity clearly set things up so that the core cash in the cash management account is held by selected banks, so it is in fact protected by the FDIC.

 

[Jerry1]

As long as Fidelity keeps their credit card, I’m good. We run our bills through the credit union except for the credit card payment. Of course, that card has some bills running through it in order to maximize the rewards points.

 

[Spock]

And then there is this:

Fidelity® Cash Management Account

All the features you need from a traditional checking account, without the bank fees.

https://www.fidelity.com/cash-management/fidelity-cash-management-account/overview?&gclsrc=ds

 

[audreyh1]

Fidelity is not going to drop their Cash Management Account. They like providing a wide range of financial services.

 

[KenZ71]

Schwab still has Bill pay service

Although Fido's credit card has nice juicy benefits

 

[gwraigty]

From Fidelity's page:

What Fidelity accounts are covered?

All Fidelity brokerage accounts are covered by SIPC. This includes money market funds held in a brokerage account since they are considered securities. Learn more about SIPC coverage at www.sipc.org
​

And then to distinguish between cash management and brokerage:

Does FDIC insurance coverage protect investments in my Fidelity® Cash Management Account? No, securities held in a brokerage account are not eligible for FDIC insurance coverage. However, brokerage accounts is protected by Securities Investor Protection Corporation (SIPC). <blah blah blah SIPC description> Money market funds held in a brokerage account are considered securities.​

The veil/fuzziness is checking/savings account-like direct auto-bill pay and ACHs from what are supposed to be securities accounts.

Fidelity isn't trying to pull the wool over anyone's eyes with their Cash Management Account. I've had a Fidelity brokerage account and a Fidelity CMA account for several years. Each account has a different number, different checks, different ATM/debit cards, and slightly different features.

Fidelity isn't trying to deceive anyone as Robinhood did. Not even close. Robinhood was trying to lure people with an extraordinarily high 3% on deposits, calling it a checking/savings account, and saying it would be covered by SIPC. The article in your link explains it pretty well.

I use my CMA strictly as a checking/online bill pay account. I don't hold any investments in it. All cash is distributed among the program banks, as audreyh1 describes.

SIPC coverage vs. FDIC coverage isn't tied to the type of account, but the type of investments that are in the account, whether it's the regular brokerage or the CMA. Brokered CDs are FDIC insured. Securities are covered by SIPC. Core cash in the CMA is FDIC insured.

The regular brokerage account doesn't have online bill pay. The CMA does.

For anyone who is interested, here is a link at Fidelity that describes the account:

https://www.fidelity.com/cash-management/overview

From the page:

"3. The Cash Balance in the Fidelity Cash Management Account is swept to an FDIC-insured interest bearing account at a Program Bank. The deposit at the Program Bank is not covered by SIPC. The deposit is eligible for FDIC insurance subject to FDIC insurance coverage limits. All assets of the account holder at the depository institution will generally be counted toward the aggregate limit. For more information about FDIC insurance coverage, please visit the FDIC website at FDIC.gov or call 877-ASK-FDIC. As referenced in the FDIC-Insured Deposit Sweep Disclosure Document for the Fidelity Cash Management Account, customers are responsible for monitoring their total assets at the Program Bank to determine the extent of available FDIC insurance. All FDIC insurance coverage is in accordance with FDIC rules. Go to Fidelity.com/FCMACoreBanks to see a list of eligible Program Banks, and the FDIC Disclosure Document."

Here is a link to the complete FAQs:

https://www.fidelity.com/cash-management/faqs-cash-management-account#

Functionally, it's not much different between having a Schwab brokerage account and a Schwab checking account, which I also have. One exception is that Schwab actually has a bank and doesn't rely on program banks to provide the same checking and online bill pay services. And you can't purchase CDs or securities in a Schwab checking account, whereas you can in a Fidelity CMA. (Why Fidelity allows this, I'm not sure, but I can see how it causes confusion.)

Spock, nothing that you are posting from Fidelity's website suggests that they're trying to deceive customers about the protection afforded by their CMA. I'm a happy customer of both Fidelity and Schwab and would be hard-pressed to recommend one over the other. People who are being adversely affected by this are looking for alternatives and facts. One bad apple (Robinhood) doesn't spoil the whole bunch.

 

[Spock]

Fidelity isn't trying to pull the wool over anyone's eyes with their Cash Management Account. I've had a Fidelity brokerage account and a Fidelity CMA account for several years. Each account has a different number, different checks, different ATM/debit cards, and slightly different features.

Fidelity isn't trying to deceive anyone as Robinhood did. Not even close. Robinhood was trying to lure people with an extraordinarily high 3% on deposits, calling it a checking/savings account, and saying it would be covered by SIPC. The article in your link explains it pretty well.

I use my CMA strictly as a checking/online bill pay account. I don't hold any investments in it. All cash is distributed among the program banks, as audreyh1 describes.

SIPC coverage vs. FDIC coverage isn't tied to the type of account, but the type of investments that are in the account, whether it's the regular brokerage or the CMA. Brokered CDs are FDIC insured. Securities are covered by SIPC. Core cash in the CMA is FDIC insured.

The regular brokerage account doesn't have online bill pay. The CMA does.

For anyone who is interested, here is a link at Fidelity that describes the account:

https://www.fidelity.com/cash-management/overview

From the page:

"3. The Cash Balance in the Fidelity Cash Management Account is swept to an FDIC-insured interest bearing account at a Program Bank. The deposit at the Program Bank is not covered by SIPC. The deposit is eligible for FDIC insurance subject to FDIC insurance coverage limits. All assets of the account holder at the depository institution will generally be counted toward the aggregate limit. For more information about FDIC insurance coverage, please visit the FDIC website at FDIC.gov or call 877-ASK-FDIC. As referenced in the FDIC-Insured Deposit Sweep Disclosure Document for the Fidelity Cash Management Account, customers are responsible for monitoring their total assets at the Program Bank to determine the extent of available FDIC insurance. All FDIC insurance coverage is in accordance with FDIC rules. Go to Fidelity.com/FCMACoreBanks to see a list of eligible Program Banks, and the FDIC Disclosure Document."

Here is a link to the complete FAQs:

https://www.fidelity.com/cash-management/faqs-cash-management-account#

Functionally, it's not much different between having a Schwab brokerage account and a Schwab checking account, which I also have. One exception is that Schwab actually has a bank and doesn't rely on program banks to provide the same checking and online bill pay services. And you can't purchase CDs or securities in a Schwab checking account, whereas you can in a Fidelity CMA. (Why Fidelity allows this, I'm not sure, but I can see how it causes confusion.)

Spock, nothing that you are posting from Fidelity's website suggests that they're trying to deceive customers about the protection afforded by their CMA. I'm a happy customer of both Fidelity and Schwab and would be hard-pressed to recommend one over the other. People who are being adversely affected by this are looking for alternatives and facts. One bad apple (Robinhood) doesn't spoil the whole bunch.

I never said Fidelity was trying to deceive.

I never said Fidelity was looking to drop their CMA.
What I said was I was expecting (maybe a better phrase would have been "not surprised") other brokerages would drop (maybe better word "revise") their CMAs based on the statements the head of the SIPC made when he came out and squashed Robinhood's marketing.



Back in December-ish when the Robinhood 3% savings/checking accounts were making news, there were commentators pointing out that the line between "banking" and "brokerage CMAs" was getting rather indistinct when you can pay bills with funds directly from a MMF security at other brokerages, not just Robinhood.

Vanguard also have been "providing a wide range of financial services".
And I read somewhere Vanguard's CMA had been in place for over 10 years. Maybe Vanguard dumped it due to lack of use (it took 10 years to figure that out?). Maybe its a coincidence Vanguard dumped it 2ish months after Robinhood triggered the SIPC and FDIC media responses.
Maybe maybe maybe. Whatever. Based on those media statements, I still wasn't surprised another brokerage made changes to their CMA and won't be surprised if more brokerages tweak things.

 

[audreyh1]

I really like the Fidelity Cash Management Account and the associated ATM fee-free debit cards.

I mainly use it to pay the Fidelity VISA card plus a couple of other credit cards that aren't conveniently linked to my bank checking ebill system. Rewards the Fidelity credit card are also automatically deposited there.

Recently I started using a Fidelity MM fund in that account to hold a larger amount of cash so that I transfer funds in less often. Now that MM funds are competing with high yield savings accounts in terms of interest rates paid, this is a handy option.

I like that any bill paying will automatically pull funds from the MM fund after it depletes the core bank account.

Billpay is available directly from a regular brokerage account as well. It's a feature you can turn on if you like.

 

[gwraigty]

Back in December-ish when the Robinhood 3% savings/checking accounts were making news, there were commentators pointing out that the line between "banking" and "brokerage CMAs" was getting rather indistinct when you can pay bills with funds directly from a MMF security at other brokerages, not just Robinhood.

I didn't follow the Robinhood debacle closely. I'm only familiar with how Fidelity's CMA works and how I personally use it.

I believe that being able to pay bills via check using a money market mutual fund in a regular brokerage account is nothing new. My Fidelity brokerage account has a core "cash" account that is a MMF. If I wanted to write checks on my brokerage account, that's where the money would come from. It's where my investment earnings are deposited. Fidelity makes it clear that those funds are covered by SIPC. They don't market it as a checking or savings product. They just offer a check writing feature. Such things have existed for decades, back when you could only buy them direct from the mutual fund companies themselves.

The Fidelity Cash Management Account is a different type of account that they offer. It has nothing to do with the core MMF accounts that are a part of the regular brokerage account with the check writing feature. It exists mainly to be used as a standard checking account with check writing and online bill pay, ATM/debit cards. When I opened mine, the Fidelity rep discouraged me from using it for investments, although they allow it. He suggested I use the regular brokerage account instead for my investing. That's what I do.

 

[gwraigty]

I really like the Fidelity Cash Management Account and the associated ATM fee-free debit cards.

I mainly use it to pay the Fidelity VISA card plus a couple of other credit cards that aren't conveniently linked to my bank checking ebill system. Rewards the Fidelity credit card are also automatically deposited there.

Recently I started using a Fidelity MM fund in that account to hold a larger amount of cash so that I transfer funds in less often. Now that MM funds are competing with high yield savings accounts in terms of interest rates paid, this is a handy option.

I like that any bill paying will automatically pull funds from the MM fund after it depletes the core bank account.

Billpay is available directly from a regular brokerage account as well. It's a feature you can turn on if you like.

I've read of people using this backdoor method of making the CMA like a higher-yielding checking account. It's not something I've given much thought to doing at this point. Clever though.

I forgot that you can use the brokerage MMF for online billpay. I'm not going there. I use the MMF to gauge what I have available to invest. That's why I like that I can strictly separate my bill-paying money from my investment money at both Fidelity and Schwab. The auto-deposit of credit card cash back at both is also a nice plus.

 

[RetiredAt55.5]

Well, apparently this won't affect me personally. Vanguard will continue to provide their money market accounts. They just won't automatically pay your bills from them.

I pay my bills by automatic deductions from my bricks'n'mortar checking account. I withdraw any money I might need for that from Vanguard, during the first week in January when I make my annual withdrawal.

I guess I don't see what the big deal is. But then, I might if used their bill paying services.

The associated Vanguard MM fund is currently yielding 2.34 % (7 day SEC yield). So basically, I'm earning 2.34% on a CHECKING account on any balance amount, with unlimited free checks, and the transaction history goes back to 2011 so I can see checks going back that far online.

Other Vanguard MM accounts do allow check writing, but only in amounts above $250, and they used to limit it to 3 checks per month (that was years ago, not sure if that's still a rule).

This is a big deal to me.

 

[PatrickA5]

I have (had) a Advantage account, but I didn't use it for bill paying or ATM access. After talking to my Flagship Rep, I think I'll just add check writing to my Prime Money Market Fund. It has a $250 minimum check amount, but other than that it will be fine for a place to store cash and write the occasional large check. I have a B&M bank to handle all of my day-to-day banking needs.

I might look into a CMA at Fidelity to test the FIDO waters. I like the idea of having a physical location that my DW (and kids) can go to when I'm gone. I think she would have some comfort knowing she could actually talk to someone in person. On the downside, they may try to talk her into something she doesn't need.

 

[audreyh1]

I didn't follow the Robinhood debacle closely. I'm only familiar with how Fidelity's CMA works and how I personally use it.

I believe that being able to pay bills via check using a money market mutual fund in a regular brokerage account is nothing new. My Fidelity brokerage account has a core "cash" account that is a MMF. If I wanted to write checks on my brokerage account, that's where the money would come from. It's where my investment earnings are deposited. Fidelity makes it clear that those funds are covered by SIPC. They don't market it as a checking or savings product. They just offer a check writing feature. Such things have existed for decades, back when you could only buy them direct from the mutual fund companies themselves.

The Fidelity Cash Management Account is a different type of account that they offer. It has nothing to do with the core MMF accounts that are a part of the regular brokerage account with the check writing feature. It exists mainly to be used as a standard checking account with check writing and online bill pay, ATM/debit cards. When I opened mine, the Fidelity rep discouraged me from using it for investments, although they allow it. He suggested I use the regular brokerage account instead for my investing. That's what I do.

Well I just decided to open one of the Fidelity MM inside my cash management account so that I could also treat it as a high yield savings account. What won me over was the automatic drawdowns of the MM fund without me having to do anything. Now instead of just moving funds in monthly to pay bills from a savings account, I leave funds to cover several months worth of bills and transfer funds in much less often.

The Robinhood setup had nothing to do with these already well established CMA/Brokerage bill pay type accounts. I suspect Vanguard dropping theirs has nothing to do with Robinhood either. I suspect it's motivated by streamlining Vanguard operations to lower costs.

 

[gwraigty]

Well I just decided to open one of the Fidelity MM inside my cash management account so that I could also treat it as a high yield savings account. What won me over was the automatic drawdowns of the MM fund without me having to do anything. Now instead of just moving funds in monthly to pay bills from a savings account, I leave funds to cover several months worth of bills and transfer funds in much less often.

The Robinhood setup had nothing to do with these already well established CMA/Brokerage bill pay type accounts. I suspect Vanguard dropping theirs has nothing to do with Robinhood either. I suspect it's motivated by streamlining Vanguard operations to lower costs.

We use direct deposit to the CMA and transfer the excess after bills are covered to the brokerage account. Same with Schwab.

I agree. It's bad when it can lead to people thinking that all cash management features are suspect.

 

[Col. Klink]

I do online banking from my bank to pay bills. I have my VG money market linked to the bank and do an ACH transfer each month to the bank to pay expenses. No big deal.

I can see why some folks who used the service are upset. The reason cited by VG for discontinuing the service seems pretty lame. Had they said that the service is expensive and by discontinuing it permits them to focus on continuing to lower fees on mutual funds and etf's, I think that rationale would have been better received.

 

[jetpack]

I just switched to Fidelity for cash management. Like to keep a lot in my checking account, and now I get 2%+.. That said, I certainly don't use it as a debit card.

 

[gwraigty]

I might look into a CMA at Fidelity to test the FIDO waters. I like the idea of having a physical location that my DW (and kids) can go to when I'm gone. I think she would have some comfort knowing she could actually talk to someone in person. On the downside, they may try to talk her into something she doesn't need.

I typically do everything online, but it's a nice option to have. They're pretty good at answering questions over the phone, too. I've gone into a Fidelity office (and Schwab) maybe once or twice to deposit a physical check before mobile deposit was a mainstream thing. I also used their medallion stamp services when I was transferring securities from TDAmeritrade to Fidelity and Schwab prior to closing our accounts with TDA.

Speaking of TDA, I had my own reasons for switching from them, but here's a link to their CMA product, for those who are exploring other alternatives:

https://www.tdameritrade.com/investment-products/cash-management.page

I might as well stick the Schwab link in here, too:

https://www.schwab.com/public/schwab/banking_lending/checking_account

I'd guess that any of the more well-known brokerages have a CMA product now. Or in reverse, somebody like Ally Bank who bought a brokerage and renamed it. It seems strange that Vanguard would be moving backwards.