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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 Schem

by 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...

by rwmj 4y ago

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...