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Any Schwab customers read the Jan. 2018 "Cash Features Disclosure Statement?"
I am not certain of what it all means but if they need 39 pages of fine print to explain it i am betting it's not in my favor. And the two CSR's I spoke to had no explanation. No supervisor was available to give it a try. I am betting that as interest rates rise on cash it won't find its way to Schwab account holders. According to M* Vanguard Prime MM has a seven day yield of 1.41% Try to get that at Schwab.
I believe Schwab's MM is at 1.2 or 1.25 now. I met with my Schwab guy yesterday and we talked about setting up a "safe-bucket" of 4 years needed withdrawal income when I start retirement. We both agreed setting up that bucket (still as an IRA) at an on-line bank like Ally or Synchrone would give slightly higher rates, maybe in the 1.3 range, and also have the CD option available. In any case, that is what I will be doing.
@MikeM ... Nice work planning for your retirement. I can’t offer much help because my unorthodox manner has been to run the whole thing in “slow-mo” (conservatively positioned) so that even withdrawing a larger sum during down year(s) won’t ding me too badly. Perhaps it works better for me because of my steady pension or modest lifestyle. Don’t know. But no cash reserve beyond what’s committed to cash in the investment portfolio. Generally, I use distributions to rebalance things out. I don’t recommend this for others.
But I’d say you are on the right track based on some of the sharper people I’ve followed here or spoken to. Good job. The approach you are exploring is much more typical. And I suspect you are doing a much better job than most are at this stage.
Tip: The retirement years pass by much faster than the work years.
Schwab has always used cash accounts as, well, cash cows. It lards its "Intelligent" Portfolios (robo accounts) with cash, and it offers little in the way of interest for its core/transaction accounts.
Those are the accounts being addressed here. No broker (at least that I know of) offers prime MMFs for use in core accounts because of their potential illiquidity. Vanguard switched from offering VMMXX to VMFXX when the new MMF regulations kicked in. So we do need to be fair here. That said, VMFXX is yielding 1.24% (Jan 11, 2018). I'd mentioned FDRXX for Fidelity IRAs (0.95%) in another thread. Both way ahead of Schwab.
If you want the higher yields (and slightly higher risk) of prime MMFs, wherever you invest, you'll need to explicitly buy them. As Schwab writes in the disclosure statement: "You should also consider higher-return options for funds that are not needed immediately, as yields on any of our Cash Features [core account options] may be lower than those of similar investments or deposit accounts"
Schwab appears to be making mostly minor changes to its core account offerings. As I read it, Schwab is phasing out one option, while increasing insurance on its FDIC bank sweep option and adding higher interest tiers (rates not disclosed) on its bank sweep and "Schwab One® Interest" options. (Schwab One® Interest is where your cash is held by Schwab as a general obligation of the company, like "Fidelity Cash".) The option that's getting phased out would let you use one of Schwab's MMFs (sweep share class) as your core account. So all that remains to use for a core account is cash (no MMF) - cash in a bank, or cash held by Schwab.
Schwab is adding more tiers to the interest rate schedule for these two options. The highest tier is now at $1M, for all the good that does. The tiers will be at:
Balances of $0 to $24,999.99
Balances of $25,000.00 to $99,999.99
Balances of $100,000.00 to $249,999.99
Balances of $250,000.00 to $499,999.99
Balances of $500,000.00 to $999,999.99
Balances of $1,000,000.00 or more
Schwab had been using one bank for the bank sweep. So your cash was FDIC-insured "only" up to $250k, or $500K if it was a joint account. It will begin using two banks, so your money (if owned jointly) could be insured up to $1M (2 x $500K), getting you close to that $1M tier - a point that Schwab makes in its disclosure.
Much of the rest is boilerplate about bank insurance, which type of Schwab accounts can use which sweep features, etc.
The only negative I see in the change is the phasing out of a Schwab Sweep Money Fund as a core account option. For example, one will not be able to open an account using SWGXX, the "Sweep Class" shares of its Government Money Fund. That class is currently yielding 0.65% according to Schwab. To show how even here Schwab milks these core accounts, the fund's Investor class shares SNVXX currently yield 0.91%.
Comments
But I’d say you are on the right track based on some of the sharper people I’ve followed here or spoken to. Good job. The approach you are exploring is much more typical. And I suspect you are doing a much better job than most are at this stage.
Tip: The retirement years pass by much faster than the work years.
Man, tell me!
Those are the accounts being addressed here. No broker (at least that I know of) offers prime MMFs for use in core accounts because of their potential illiquidity. Vanguard switched from offering VMMXX to VMFXX when the new MMF regulations kicked in. So we do need to be fair here. That said, VMFXX is yielding 1.24% (Jan 11, 2018). I'd mentioned FDRXX for Fidelity IRAs (0.95%) in another thread. Both way ahead of Schwab.
If you want the higher yields (and slightly higher risk) of prime MMFs, wherever you invest, you'll need to explicitly buy them. As Schwab writes in the disclosure statement: "You should also consider higher-return options for funds that are not needed immediately, as yields on any of our Cash Features [core account options] may be lower than those of similar investments or deposit accounts"
Schwab appears to be making mostly minor changes to its core account offerings. As I read it, Schwab is phasing out one option, while increasing insurance on its FDIC bank sweep option and adding higher interest tiers (rates not disclosed) on its bank sweep and "Schwab One® Interest" options. (Schwab One® Interest is where your cash is held by Schwab as a general obligation of the company, like "Fidelity Cash".) The option that's getting phased out would let you use one of Schwab's MMFs (sweep share class) as your core account. So all that remains to use for a core account is cash (no MMF) - cash in a bank, or cash held by Schwab.
Schwab is adding more tiers to the interest rate schedule for these two options. The highest tier is now at $1M, for all the good that does. The tiers will be at:
- Balances of $0 to $24,999.99
- Balances of $25,000.00 to $99,999.99
- Balances of $100,000.00 to $249,999.99
- Balances of $250,000.00 to $499,999.99
- Balances of $500,000.00 to $999,999.99
- Balances of $1,000,000.00 or more
Schwab had been using one bank for the bank sweep. So your cash was FDIC-insured "only" up to $250k, or $500K if it was a joint account. It will begin using two banks, so your money (if owned jointly) could be insured up to $1M (2 x $500K), getting you close to that $1M tier - a point that Schwab makes in its disclosure.Much of the rest is boilerplate about bank insurance, which type of Schwab accounts can use which sweep features, etc.
The only negative I see in the change is the phasing out of a Schwab Sweep Money Fund as a core account option. For example, one will not be able to open an account using SWGXX, the "Sweep Class" shares of its Government Money Fund. That class is currently yielding 0.65% according to Schwab. To show how even here Schwab milks these core accounts, the fund's Investor class shares SNVXX currently yield 0.91%.