7 ms·

Yeah, I had like $4k left in a brokerage account. Then one month I noticed ~$100+ dropped in there and I was like WTF? That's 10x what I see in my savings acc

Yeah, I had like $4k left in a brokerage account. Then one month I noticed ~$100+ dropped in there and I was like WTF? That's 10x what I see in my savings account for the same amount of money just sitting there! So my money market is now my savings account. The risk is that you could lose your principal...but I guess not anymore!?! Thanks SVB, FRC, et al.

rwmj 4y ago
In the UK cash deposits in brokerage accounts are guaranteed in the same way as bank accounts (up to £85,000), through the Financial Services Compensation Scheme. Is that not the same in the US? Edit: To clarify, only the cash deposits, not any shares or bonds you buy of course. Also not all brokerage accounts, only ones based in the UK which have to be registered with the FSCS.
- Uvix 4y ago
  In the US it depends on the brokerage. Fidelity's cash deposits are FDIC-insured, like bank accounts; Vanguard is working on a similar program but hasn't rolled it out to everyone yet. (On the other hand, the existing program at Vanguard puts the money into a fund that invests at least 99.5% of its assets in Federal government-backed securities, so it should be effectively just as safe.)
  - thwayunion 4y ago
    AFAIU, Fidelity's cash deposits are FDIC insured but the default "core" position -- where uninvested money goes to sit -- is SPAXX, which is not FDIC insured. That position is mostly U.S. Government Repurchase Agreements, with some treasuries and agency securities mixed in. No idea what risks might be associated with everyone now treating these mutual funds as de facto bank accounts...
    - daydream 4y ago
      Money in Fidelity money market funds is protected by the SIPC, up to $500k. Specifically, for their cash management accounts: “Cash balances in the Fidelity® Cash Management Account are swept into an FDIC-Insured interest bearing account at one or more program banks and, under certain circumstances, a money market mutual fund (the "Money Market Overflow"). Deposits swept into the program bank(s) are eligible for FDIC Insurance, subject to FDIC insurance coverage limits. Balances that are swept to the Money Market Overflow are not eligible for FDIC insurance but are eligible for SIPC coverage under SIPC rules (referenced below). Fidelity automatically performs all transfers between the program banks and your account. You cannot access your funds directly from a program bank.” [1] More detail: “Securities Investor Protection Corporation (SIPC) - All Fidelity brokerage accounts are automatically protected by the SIPC. SIPC protects brokerage accounts of each customer when a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing from accounts, including a limit of up to $500,000 in securities with a maximum of $250,000 on claims for cash awaiting investment. Money market funds held in a brokerage account are considered securities. For more information, visit sipc.org.” [2] [1] https://www.fidelity.com/cash-management/fidelity-cash-management-account/overview https://www.fidelity.com/cash-management/fidelity-cash-manag... [2] http://personal.fidelity.com/misc/ekits/pdf/safeguarding_your_account.pdf http://personal.fidelity.com/misc/ekits/pdf/safeguarding_you...
      - thwayunion 4y ago
        The question is about systemic risk to the fund, not the brokerage. SIPC insures the brokerage, not te position; if SPAXX goes to zero, you ain't getting nothing from SIPC. And, to be clear: money market mutual funds ARE exposed to liquidity and credit risks, but a run on a mutual fund doesn't get the same protection as a run on a bank. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/mutual-funds/understanding-liquidity-in-money-market-mutual-funds.pdf https://www.fidelity.com/bin-public/060_www_fidelity_com/doc...
- dboreham 4y ago
  No. Most brokerages have a "bank" account option, which is fdic insured, but doesn't pay money market interest. The default "sweep" account for cash at a brokerage is usually a money market account, not fdic insured. You can move money between those two accounts as you please of course, if you have the "bank at brokerage" type account.
- jaggederest 4y ago
  We have the SIPC which is a bit like the FDIC, though I'm not fully educated on the differences. My understanding is that it's protection, but not ironclad. https://en.wikipedia.org/wiki/Securities_Investor_Protection_Corporation https://en.wikipedia.org/wiki/Securities_Investor_Protection...
sp332 4y ago
https://www.reuters.com/business/finance/yellen-tells-senators-us-banking-system-remains-sound-2023-03-16/ https://www.reuters.com/business/finance/yellen-tells-senato... Only if "the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences." So maybe don't bet on it too hard.
mysterydip 4y ago
I was curious so I checked PNC, and in the best case they only pay 0.04% until you have over $100k in it, then the rate jumps to 1.5%.
ars 4y ago
That's what I did very recently - I bought SHV which is basically short term treasuries. It pays more than a savings account, and is essentially risk free. It pays 4.5% which only the very best savings accounts can match.
actionablefiber 4y ago
My savings account pays me 4% interest. You may want to shop around for a new bank.
- wccrawford 4y ago
  Hold onto that account like it's gold. My bank's savings accounts are 0.01%. With a minimum of $10,000 it goes up to 0.05%. At 1 million dollars, it's 1.4%.
  - ceejayoz 4y ago
    You can get one in like five minutes. All the major high-yield savings accounts are at 3-4% now. 4%: https://www.sofi.com/banking/savings-account/ https://www.sofi.com/banking/savings-account/ 3.75%: https://www.americanexpress.com/en-us/banking/online-savings/high-yield-savings/ https://www.americanexpress.com/en-us/banking/online-savings... None of them are fixed, they go up and down along with the Fed rate. "High-yield" was 1% a few years ago, but no one should be keeping substantial amounts in any savings account that only offers 0.01%.
  - actionablefiber 4y ago
    Get a new bank. Ally, SoFi, AmEx all pay upwards of 3.5% with no minimum.
lmm 4y ago
Money market funds are not generally FDIC-insured. Given that the failure of SVB has made the implicit 100% FDIC guarantee a more explicit one, I'd say there's less reason to switch to a money-market fund than there was two weeks ago, not more.
- ceejayoz 4y ago
  They’re protected. There’s an FDIC for securities. Same $250k limit, same likelihood of going above that in practice. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects > Money market mutual funds, often thought of as cash, are protected as securities by SIPC.
  - IAmGraydon 4y ago
    Money market accounts and money market mutual funds are not the same thing and are not protected the same way.
    - ceejayoz 4y ago
      The parent poster said "money market funds". Money market accounts are protected by FDIC: https://www.consumerfinance.gov/ask-cfpb/is-a-money-market-account-insured-en-1007/ https://www.consumerfinance.gov/ask-cfpb/is-a-money-market-a... > Yes. Like other deposit accounts, money market accounts are insured by the FDIC and NCUA up to $250,000 for each account holder. You're protected by something either way.
  - lmm 4y ago
    > They’re protected. There’s an FDIC for securities. Same $250k limit, same likelihood of going above that in practice. Not really. You're (partially) protected from your broker using your money market fund for themselves - even in a bankruptcy you get your fund back - but you're not protected against it becoming worth a bit less than you deposited (which is what would happen in an SVB-like situation - interest rates go up and so the value of your fund goes down) since it isn't actually cash. The line you quoted is really a warning, in the context of a couple of other lines from your link: > SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins. > SIPC does not protect against the decline in value of your securities

rwmj 4y ago

In the UK cash deposits in brokerage accounts are guaranteed in the same way as bank accounts (up to £85,000), through the Financial Services Compensation Scheme. Is that not the same in the US? Edit: To clarify, only the cash deposits, not any shares or bonds you buy of course. Also not all brokerage accounts, only ones based in the UK which have to be registered with the FSCS.

Uvix 4y ago
In the US it depends on the brokerage. Fidelity's cash deposits are FDIC-insured, like bank accounts; Vanguard is working on a similar program but hasn't rolled it out to everyone yet. (On the other hand, the existing program at Vanguard puts the money into a fund that invests at least 99.5% of its assets in Federal government-backed securities, so it should be effectively just as safe.)
- thwayunion 4y ago
  AFAIU, Fidelity's cash deposits are FDIC insured but the default "core" position -- where uninvested money goes to sit -- is SPAXX, which is not FDIC insured. That position is mostly U.S. Government Repurchase Agreements, with some treasuries and agency securities mixed in. No idea what risks might be associated with everyone now treating these mutual funds as de facto bank accounts...
  - daydream 4y ago
    Money in Fidelity money market funds is protected by the SIPC, up to $500k. Specifically, for their cash management accounts: “Cash balances in the Fidelity® Cash Management Account are swept into an FDIC-Insured interest bearing account at one or more program banks and, under certain circumstances, a money market mutual fund (the "Money Market Overflow"). Deposits swept into the program bank(s) are eligible for FDIC Insurance, subject to FDIC insurance coverage limits. Balances that are swept to the Money Market Overflow are not eligible for FDIC insurance but are eligible for SIPC coverage under SIPC rules (referenced below). Fidelity automatically performs all transfers between the program banks and your account. You cannot access your funds directly from a program bank.” [1] More detail: “Securities Investor Protection Corporation (SIPC) - All Fidelity brokerage accounts are automatically protected by the SIPC. SIPC protects brokerage accounts of each customer when a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing from accounts, including a limit of up to $500,000 in securities with a maximum of $250,000 on claims for cash awaiting investment. Money market funds held in a brokerage account are considered securities. For more information, visit sipc.org.” [2] [1] https://www.fidelity.com/cash-management/fidelity-cash-management-account/overview https://www.fidelity.com/cash-management/fidelity-cash-manag... [2] http://personal.fidelity.com/misc/ekits/pdf/safeguarding_your_account.pdf http://personal.fidelity.com/misc/ekits/pdf/safeguarding_you...
    - thwayunion 4y ago
      The question is about systemic risk to the fund, not the brokerage. SIPC insures the brokerage, not te position; if SPAXX goes to zero, you ain't getting nothing from SIPC. And, to be clear: money market mutual funds ARE exposed to liquidity and credit risks, but a run on a mutual fund doesn't get the same protection as a run on a bank. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/mutual-funds/understanding-liquidity-in-money-market-mutual-funds.pdf https://www.fidelity.com/bin-public/060_www_fidelity_com/doc...
dboreham 4y ago
No. Most brokerages have a "bank" account option, which is fdic insured, but doesn't pay money market interest. The default "sweep" account for cash at a brokerage is usually a money market account, not fdic insured. You can move money between those two accounts as you please of course, if you have the "bank at brokerage" type account.
jaggederest 4y ago
We have the SIPC which is a bit like the FDIC, though I'm not fully educated on the differences. My understanding is that it's protection, but not ironclad. https://en.wikipedia.org/wiki/Securities_Investor_Protection_Corporation https://en.wikipedia.org/wiki/Securities_Investor_Protection...

sp332 4y ago

https://www.reuters.com/business/finance/yellen-tells-senators-us-banking-system-remains-sound-2023-03-16/ https://www.reuters.com/business/finance/yellen-tells-senato... Only if "the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences." So maybe don't bet on it too hard.

mysterydip 4y ago

I was curious so I checked PNC, and in the best case they only pay 0.04% until you have over $100k in it, then the rate jumps to 1.5%.

ars 4y ago

That's what I did very recently - I bought SHV which is basically short term treasuries. It pays more than a savings account, and is essentially risk free. It pays 4.5% which only the very best savings accounts can match.

actionablefiber 4y ago

My savings account pays me 4% interest. You may want to shop around for a new bank.

wccrawford 4y ago
Hold onto that account like it's gold. My bank's savings accounts are 0.01%. With a minimum of $10,000 it goes up to 0.05%. At 1 million dollars, it's 1.4%.
- ceejayoz 4y ago
  You can get one in like five minutes. All the major high-yield savings accounts are at 3-4% now. 4%: https://www.sofi.com/banking/savings-account/ https://www.sofi.com/banking/savings-account/ 3.75%: https://www.americanexpress.com/en-us/banking/online-savings/high-yield-savings/ https://www.americanexpress.com/en-us/banking/online-savings... None of them are fixed, they go up and down along with the Fed rate. "High-yield" was 1% a few years ago, but no one should be keeping substantial amounts in any savings account that only offers 0.01%.
- actionablefiber 4y ago
  Get a new bank. Ally, SoFi, AmEx all pay upwards of 3.5% with no minimum.

lmm 4y ago

Money market funds are not generally FDIC-insured. Given that the failure of SVB has made the implicit 100% FDIC guarantee a more explicit one, I'd say there's less reason to switch to a money-market fund than there was two weeks ago, not more.

ceejayoz 4y ago
They’re protected. There’s an FDIC for securities. Same $250k limit, same likelihood of going above that in practice. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects > Money market mutual funds, often thought of as cash, are protected as securities by SIPC.
- IAmGraydon 4y ago
  Money market accounts and money market mutual funds are not the same thing and are not protected the same way.
  - ceejayoz 4y ago
    The parent poster said "money market funds". Money market accounts are protected by FDIC: https://www.consumerfinance.gov/ask-cfpb/is-a-money-market-account-insured-en-1007/ https://www.consumerfinance.gov/ask-cfpb/is-a-money-market-a... > Yes. Like other deposit accounts, money market accounts are insured by the FDIC and NCUA up to $250,000 for each account holder. You're protected by something either way.
- lmm 4y ago
  > They’re protected. There’s an FDIC for securities. Same $250k limit, same likelihood of going above that in practice. Not really. You're (partially) protected from your broker using your money market fund for themselves - even in a bankruptcy you get your fund back - but you're not protected against it becoming worth a bit less than you deposited (which is what would happen in an SVB-like situation - interest rates go up and so the value of your fund goes down) since it isn't actually cash. The line you quoted is really a warning, in the context of a couple of other lines from your link: > SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins. > SIPC does not protect against the decline in value of your securities