Bank accounts or Vanguard/Fidelity cash accounts?

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JoMoney
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Re: Bank accounts or Vanguard/Fidelity cash accounts?

Post by JoMoney »

kvdecide wrote: Fri May 20, 2022 6:33 am
JoMoney wrote: Thu May 19, 2022 9:47 pm
Outside of the above, the Fidelity CMA has been a great bank-like checking account. You have the option to transfer funds from the default FDIC bank sweep into certain money market funds (like FDRXX currently has a .42% SEC yield) and can transact/debit those funds the same as if it was in the bank sweep.
But if you invest in a money market fund like FDRXX, you are not covered by FDIC anymore. So a sweep into FDRXX is not as risk-free as a traditional FDIC insured savings bank account.

Granted, its unusual for FDRXX to breach $1 threshold.
True that it's not FDIC insured, but it's not just "unusual" there is no precedence for a Government (federal) money market fund "breaking the buck."
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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kvdecide
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Joined: Tue Apr 19, 2022 4:15 am

Re: Bank accounts or Vanguard/Fidelity cash accounts?

Post by kvdecide »

JoMoney wrote: Fri May 20, 2022 7:39 am
kvdecide wrote: Fri May 20, 2022 6:33 am
JoMoney wrote: Thu May 19, 2022 9:47 pm
Outside of the above, the Fidelity CMA has been a great bank-like checking account. You have the option to transfer funds from the default FDIC bank sweep into certain money market funds (like FDRXX currently has a .42% SEC yield) and can transact/debit those funds the same as if it was in the bank sweep.
But if you invest in a money market fund like FDRXX, you are not covered by FDIC anymore. So a sweep into FDRXX is not as risk-free as a traditional FDIC insured savings bank account.

Granted, its unusual for FDRXX to breach $1 threshold.
True that it's not FDIC insured, but it's not just "unusual" there is no precedence for a Government (federal) money market fund "breaking the buck."
Agreed there is no precedence. But just to make the risk of Fidelity CMA same as risk of a traditional bank account, you could invest cash from your FIdelity CMA in short 13 week Tbills. These Tbills yield more than FDRXX and are backed by the full credit/faith of USG. If you need that cash, you can sell Tbills in the market. But in any case its only a 13 week hold
djheini
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Re: Bank accounts or Vanguard/Fidelity cash accounts?

Post by djheini »

I have done the Fidelity CMA as my primary checking account before, and it was fine, subject to the limitations previously described. I currently use Ally as my main checking account, but also have a BoA checking account (free + required for preferred rewards status).

* It's nice to have YNAB linked to Ally so I get the benefits of auto-importing of transactions without having to give it credentials to my Fidelity account (not that I expect anything would happen, but it adds a bit more peace of mind to not have credentials to my "big" account somewhere else).
* I only use the BoA checking as the sweep account for credit card rewards, and occasionally use their ATMs to make deposits (either cash or if I don't feel like holding onto a check like they tell you to after doing the mobile deposit).

I made the switch when the rates you could get in the Fidelity CMA went to essentially zero (actually lower than the 0.1% or whatever ally checking paid) so it didn't have much benefit over Ally. As rates go back up I may have to reconsider.
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JoMoney
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Re: Bank accounts or Vanguard/Fidelity cash accounts?

Post by JoMoney »

kvdecide wrote: Fri May 20, 2022 12:34 pm... But just to make the risk of Fidelity CMA same as risk of a traditional bank account, you could invest cash from your FIdelity CMA in short 13 week Tbills. These Tbills yield more than FDRXX and are backed by the full credit/faith of USG. If you need that cash, you can sell Tbills in the market. But in any case its only a 13 week hold
If you have to sell them (and wait for them to settle) or mature, that negates the idea of having the money immediately via check/atm/bill pay etc.. as it would be in the money market (or FDIC sweep.) Nothing wrong with Tbills, but I have no desire to deal with them, and I have no qualms with the "risks" of Fidelity's Gov. Money Market relative to holding Tbills. The next tier of holding for me after the bank/money market fund would be Savings Bonds or maybe Fidelity's Short-Term Bond Fund (FNSOX)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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