I saw an issue referred to a little while ago: it went something like this: "cash reserves" that are sitting in Fido are by default put into some stoopid reserve account, where it just SITS, earning nothing. I think it's NOT a MM fund. The client has to manually move the money to a selected MM account? Because Fido does not have its own "bank?"
Sound familiar? If anyone can straighten me out about this, I'd be glad.
Comments
Cash reserves are automatically swept into Fidelity money market funds.
Perhaps you're thinking of Schwab advised accounts?
IIRC, customers who use Schwab advisory services are asked to keep a fairly large
amount in "cash accounts" which yield much less (zilch?) than money market funds.
When MMs were paying nothing it didn’t matter. But now that they’re paying 5+ I try to keep the cash at a minimum.
Dont know about Fido.
Whenever I've read articles rating online brokers, Schwab always performs well in the ratings.
I've been with Fidelity for many years and am pleased with their service and offerings.
NOTE to OP: All of them pay high, NON-shi$$y rates!
Taxable
Will show in your account as "Cash, Held in Money Market"
Current Core: SPAXX
Other Core Option: FZFXX, FCASH
IRA
Will show in your account as "Cash, Held in Money Market"
Current Core: FDRXX
Other Core Option: SPAXX
When you click on your Core Position, there's a hot link "How Your Core Position Works." Clicking on that you get a pop up that states:
How Your Core Position Works
A core position is automatically established when you open a Fidelity account. It's primarily used for processing cash transactions and for holding uninvested cash. When you sell a security, the proceeds are deposited in your core position. When you buy a security, cash in your core position is used to pay for the trade.
Your core position is also used for processing (a list of about 10 things that didn't copy in).
You can easily change your Core Position there as well to your preferred MMkt account.
NOTE: On the flip side, to be sure we are always getting the highest rate on idle Cash, we routinely manually transfer all Core Position Cash to FZDXX in all accounts.
The very nice Cash feature that Fido has over VG (and perhaps other brokerages) is that it will search ALL MMkt positions for funds for Settlements, Transfers, etc. VG does NOT do this - Cash there must be in your Core (or Settlement) Position in order to fund just about any (all?) non-VG transaction. So it's many times a 2-step process at VG to BUY something.
They're infamous for their brokerage cash-management policies/processes.
* I wonder how much they get paid for order-flow from the various cash-like ETFs they offer.
Vanguard has m-mkt VMFXX as core/settlement funds, and that is the best it offers.
Schwab doesn't offer any m-mkt fund as core/settlement fund. So, when using Schwab m-mkt funds, beware of T+1 settlement for them. Otherwise, trade may be disallowed, or 1-day margin interest charged.
I have had both Fido and Schwab brokerage a/c for years, and more recently, also VG Brokerage. All have their unique issues.
Idle cash at Fido is swept into a fund which earns about 5% right now.
Idle cash at Schwab is swept into a fund which earns less than 0.5% right now.
The House of Chuck earns a lot of money from the spread between the pittance it pays on cash and what it earns. With interest rates where they are right now, many Schwab investors have started moving their idle cash into more lucrative funds which is dinging Schwab’s profits.
Any time I sell a fund, I enter to buy a MM fund and they pay better than Fidelity. It's really that simple.
I stated here several annoying stuff that Fidelity does.
1) I get almost all my I share buy fees of $49.95 waived. It is extremely hard to get at Fidelity. It works well with my trading
2) Cash rewards for transfer from another broker at Schwab are easier to get, all you have to show is another broker that has it. I used Etrade most time. See Etrade offers (link). Example: if you transfer $100K to Schwab you will get $300, but not at Fidelity. Tried is several times. Schwab is more flexible.
3) If you sell an OEF whole position at Fidelity IRA, you can't buy online, you must call a rep, and they will buy only at 90%, even if you sold a bond fund, this is an exclusive Fidelity thing. I hate this one so much. Sometimes when I call the rep, they claim you can't buy, you must wait another day for settlement. At Schwab, I sell a fund, and immediately buy another, in my case at 99% of the proceeds of my bond fund.
4) Schwab updates their distributions much faster. Many bond funds pay on the last day of the month, by 9 PM they are in. It can take Fidelity 1 day or even 2 days.
5) Schwab MM pay a bit more. For ni min, SWVXX=5.2%, for one million min SNAXX=5.37%. You can see Fidelity (here)
6) Schwab has more unique funds that I'm looking for with lower min.
The above are important to me, but probably not much for most. Other than that, both are the best IMO.
Cash, often called a "free credit balance" is a general liability of the brokerage. The money is recorded as a cash asset of the brokerage and also as a liability, a debt that the brokerage owes you. The brokerage may or may not pay interest on that cash. That interest shows up on your 1099-INT.
At Fidelity, cash is denoted FCASH. Fidelity typically keeps its interest rate the same as the rate you get on a bank sweep account. That's currently 2.69%, APY 2.72%. FCASH can be used for the core account in a taxable account.
https://www.fidelity.com/trading/faqs-about-account#faq_about2
At Schwab, cash is called "Schwab One Interest." Same idea, except that Schwab One Interest and the bank sweep option are currently yielding just 0.45% APY.
https://www.schwab.com/cash-investments (see Everyday Cash)
In addition to VMFXX, Vanguard now offers a bank sweep as a core/transaction account option. This is new. As with the other brokerages, it earns less interest than the MMF option. As is typical for Vanguard, the sweep option still pays more than sweep accounts at other brokerages. It is currently paying 3.7% APY.
Vanguard settlement options: https://investor.vanguard.com/investment-products/vanguard-cash-deposit
Bank sweep accounts may be preferable to MMFs for some people wanting FDIC coverage. Arguably one is getting similar coverage from SIPC for cash accounts. But that counts against the total $500K SIPC coverage for the brokerage account. I don't see any good reason for using a cash account over a bank sweep or a MMF core account.
The method to my madness … ? I sold half of my position in Franklin’s INCM (ETF) and bought a similar position in its sibling FKIQX (OEF). Added a few dollars in the process. Was attempting to keep the end invested amounts as equal as possible so I can better compare them going forward. (Not an easy task with the value of the ETF constantly fluctuating.) The ETF should outperform, having only half the ER of the OEF. But I’m not convinced that will be the case. Expecting the opposite.
Don’t mind my rattling on …
@Crash If you trade a lot and maintain little in the way of a cash balance (like me), Fido’s probably slightly better due to proceeds from ETF sales being immediately available vs what sounds like a 2 day wait at Schwab. For most folks that wouldn’t be a problem. But, beginning in May, due to a change in regulations, that wait at Schwab should be just 1 day - at least as I understand it.
On the latter, I do think they are paying MM rates on the cash in Intelligent Portfolios at least now they are. This is based on looking at my daughter in law's account transactions recently.
Someone who has such a portfolio personally might confirm.
I think the fund screeners at Fido are better, but Schwab seems to have wider variety of funds.
We have accounts at both.
BTYW my wife moved some of her Fido account to Schwab to more easily gift our daughter some shares
We got daily calls from Fido wanting to know what they had done to cause us to leave! They went to VM but they were begging to talk to us.
I have never needed to set up a designated account contact there, but the fellow I have at Schwab is very helpful
Idle cash at Fido is swept into a fund which earns about 5% right now.
Idle cash at Schwab is swept into a fund which earns less than 0.5% right now.
It's going to be up to you to keep a close eye on your cash account which earns almost nothing, and manually transfer spare cash into a MMKT or Schwab Bank checking account. As others have said, it's pretty much the one thing that nobody likes about Schwab. Offsetting this is the fact that the Schwab website is very easy to work with, and neither the brokerage nor Schwab Bank nickle & dime you on expenses.
Most investors should just select their AA and hardly trade = not many irritations at all.
For me, there is nothing more irritating than calling Fidelity reps after I sell in an IRA, and half of them claim you can't do it, and then I insist on talking with a supervisor. That is 15 minutes and a lot longer than buying cash in 10 seconds at Schwab. I also noticed that the Fidelity reps' knowledge got lower in the last several years.
>>Idle cash at Fido is swept into a fund which earns about 5% right now.
Yeah, my accounts:
FIDELITY GOVERNMENT CASH RESERVES (FDRXX) is currently 4.96% while FIDELITY GOVERNMENT MONEY MARKET (SPAXX) is currently 4.97%
@msf:
>> At Fidelity, cash is denoted FCASH. Fidelity typically keeps its interest rate the same as the rate you get on a bank sweep account. That's currently 2.69%, APY 2.72%. FCASH can be used for the core account in a taxable account.
Hmm. So FDRXX and SPAXX are not that, FCASH, evidently.
They are my core account, the latter in a taxable account.
https://www.fidelity.com/trading/faqs-about-account#faq_about2
SIPC coverage is up to $500K with a $250K limit for cash. The cash coverage limit does not apply to MMF shares (those are securities), nor to bank sweep balances (that's in the bank not the brokerage and is covered by FDIC). It applies strictly to cash, pure and simple, and what I think Crash was asking about.
Yes, that smells right.
I have been through ALL of your responses. Very informative. I barely keep any spare cash in the brokerage account. Currently, there is a once-per-month automatic w/d by TRP from my checking account which goes to buy MM shares. PRTXX. Earns a bit less that 5% at the moment. It's mostly Treasuries. Whenever I have $$$ in that MM fund, it is only there for a short time before I use it to buy stuff. So I guess the automatic sweep rate at Schwab or Fido would not bother me, being so miniscule.
What would bother me is the transparent junk which has been mentioned: they make you deliberately switch your cash from the stinky place to the MMF which earns decent interest for the customer. The very fact that is going on steers me away from Schwab. It's crappy and underhanded.
...Not to mention that I've waited a full day to get a call-back from Schwab, from the downtown office, which has not come. Stinky poopy. Not a good sign.
Might be that I'm just stuck with TRP. The sweep account I chose PRTXX makes good interest. I might have manually selected it at the start, but since then, every bit of free cash goes there, not somewhere else, of someone ELSE'S choosing. That's just junk. I don't wanna have to be looking over my own shoulder all the time about crap like that.
Also, on the phone, I was told that despite the presence of a downtown office, that downtown office is pretty useless. And it's not just the downtown office in my city. It's by design. (I mentioned this in a different thread.) Why bother with the office, then? Have the employee meet me for lunch and we'll do stuff at some restaurant, somewhere????? Appointments are a pre-requisite. Just walking in, even as a customer, will get you nowhere. And I have read that my downtown branch will NOT ACCEPT CASH???? WTF.