8 ms·

Money Market Deposit Accounts are insured by the FDIC and have the same $250K insurance limit as savings accounts. To the extent that money market accounts may

Money Market Deposit Accounts are insured by the FDIC and have the same $250K insurance limit as savings accounts. To the extent that money market accounts may pay a slightly higher interest rate than savings accounts, it's because they typically require a higher initial deposit and a higher minimum balance. Moving funds from a savings account to a money market account because you're worried about deposit insurance makes no sense. Now, if they're talking about Money Market Mutual Funds as opposed to Money Market Deposit Accounts, those are NOT FDIC insured and typically have more restrictions on how quickly and how frequently you can withdraw money, and in exchange pay a slightly higher interest rate still.

dboreham 4y ago
Perhaps the recent news just prompted people to take some time to manage their deposits for higher yield.
dkjaudyeqooe 4y ago
Just buy Treasury bills. They're backed by the backer of the FDIC. Go directly to the source of all financial security. They're "risk free".
- capableweb 4y ago
  Doesn't that suffer from some of the same risks as what brought SVB down? I'm not super educated when it comes to the US financial system, so probably high chance I'm wrong. But as far as I understand it, T-bills suffer from the "interest risk" in that if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. They might also not keep up with inflation, so the inflation could be higher than the yield, meaning you'd lose purchasing power effectively. But again, I might completely misunderstand things, but I don't think there is any investment that is absolutely risk free, which I guess is why you put it in quotation marks in the end.
  - NordSteve 4y ago
    T-bills have very short duration, so interest rate changes have smaller effect on their value. Think of the duration as a lever, the longer the lever the larger the move in value that interest rate change make.
  - geraldwhen 4y ago
    You are not a bank and need to ensure far less cash. https://www.treasurydirect.gov/marketable-securities/tips/ https://www.treasurydirect.gov/marketable-securities/tips/ You could buy TIPS or I-bonds.
  - dmoy 4y ago
    SVB wasn't buying Treasury bills (<1 year term). They were buying notes at like 5 years and longer term bonds. So they suffer from the same type of interest rate risk, but at order of magnitude lower impact.
  - Out_of_Characte 4y ago
    You're correct, but even underwater T-bills are better than holding the money. Its essentially both insurance and additional interest. the only risk is having to sell them at the wrong time.
  - spaceman_2020 4y ago
    As an individual investor, you don’t have redemptions pressure from customers asking for their money back. If you fee that you don’t need the money before X years, you can get treasuries for those years and not sell them before maturity.
  - toast0 4y ago
    > if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. As others pointed out, T-Bill indicates a shorter term than T-Note which is shorter than T-Bond... but either way, it's not that the instruments are hard to sell, it's a very liquid market, but the prices rapidly adjust so that yield to maturity for a given maturity date is broadly similar regardless of the initial yield and coupon. It may be emotionally hard to sell and realize a loss if interest rates rise after your purchase, but it's not transactionally hard. If you are subject to a mark to maturity reporting regime, it may also look bad on your balance sheet, but I don't believe individuals would be subject to that.
- dehrmann 4y ago
  Unless the US hits the debt ceiling.
  - ProjectArcturis 4y ago
    Then everything is fucked.
    - vasco 4y ago
      I see this type of thinking a lot online, and while it makes sense to a certain extent to not overly prepare for unlikely doomsday scenarios where "you'd have bigger problems", it still makes sense to not-overly prepare, if that makes sense. For example, failed states (even after complete destruction due to war), have a way of honoring primary residence property rights even after the rebuild of the country, many times including secondary properties that are not your primary residence (ie germany, poland after wwii, more examples exist). So if you know this history, you'd do well to make sure you own some property, not just "paper". This is only one aspect of investing, but I've seen many people claim from the same source argument things like "holding REITs is better than a home because it's way more liquid and flexible", which... yes, but.
      - dehrmann 4y ago
        Property rights remind me how most(-ish) cities are older than the countries they're in.
  - dkjaudyeqooe 4y ago
    The constitution says that the US has to pay its debts, but it doesn't say that about its other expenses, so that isn't necessarily true.
- ed25519FUUU 4y ago
  You just have to be able to click in your password on possibly the worst designed website in finance!
  - mNovak 4y ago
    You can paste the pw into the field if you edit the html!
    - quags 4y ago
      This is my method. A little edit and I don’t need to use that dumb keyboard.
    - doublerebel 4y ago
      There are autohotkey-style scripts for every OS that emulate a keyboard for paste, which can be mapped to a variation of the keyboard shortcut for paste. Very fast to install and you never have to edit html again for this purpose.
  - kccqzy 4y ago
    You don't have to buy treasury bills straight from the treasury. Buy them from Schwab and other brokers to spare yourself that ugly website.
tedunangst 4y ago
It makes sense if you're worried about the uninsured value of your deposit and want it to be backed by assets with less rate risk.
rcme 4y ago
The issue with keeping money in the bank isn’t that the money is uninsured. The issue is that the money is uninsured and the bank is insolvent. Money market funds aren’t insolvent.
- lowkey 4y ago
  Another issue is that the FDIC insurance fund currently holds $148 Billion to protect over $17 Trillion in deposits. Where does the money come from if 0.8% insurance coverage ratio is insufficient in the event of a crisis? More money printing? More inflation?
- cm2187 4y ago
  Money market funds buy banks CDs and CPs.
  - rcme 4y ago
    Some do, many don't. E.g. VMFXX holds government-backed debt: https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx#portfolio-composition https://investor.vanguard.com/investment-products/mutual-fun...
    - DebtDeflation 4y ago
      So does SVB. Holding Treasuries is no guarantee of solvency when their maturities are out in the future and suddenly half your depositors want to withdraw their funds today.
      - sir0010010 4y ago
        If you click on the link for VMFXX, it says that the average maturity of the US treasury debt that it holds is 13 days. The average maturity for SVB's treasury holdings, on the other hand, was more than 6 years.
hedora 4y ago
If you have $500K in savings, and move half to a money market account elsewhere, you go from 50% to 100% FDIC insured. Also, there are sweep accounts that automate this. You can use that technique to easily get $3M of FDIC insurance from a single account. They typically yield high amounts of interest, so I assume they are backed by money market accounts.
- mindslight 4y ago
  Sweep accounts do generally tell you at which institution the deposits are being held, because it's critically important to know if you have an account there directly, as they'd both under the same FDIC coverage.
  - jlrubin 4y ago
    wouldn't those be a different category & thus get unique coverage?
    - mindslight 4y ago
      There aren't that many FDIC coverage categories. I'd guess that individual sweep accounts would end up in the revocable trust category, the same as most "regular" accounts? Or maybe sweep accounts would end up in the individual ownership category while regular accounts (with beneficiary) would be in revocable trust? This seems like the kind of question that by the time you'd benefit from knowing exactly (rather than just being overly conservative), you're paying professionals to manage all this for you. There's no need to make an amateur determination that you won't know is wrong until it's too late.

dboreham 4y ago

Perhaps the recent news just prompted people to take some time to manage their deposits for higher yield.

dkjaudyeqooe 4y ago

Just buy Treasury bills. They're backed by the backer of the FDIC. Go directly to the source of all financial security. They're "risk free".

capableweb 4y ago
Doesn't that suffer from some of the same risks as what brought SVB down? I'm not super educated when it comes to the US financial system, so probably high chance I'm wrong. But as far as I understand it, T-bills suffer from the "interest risk" in that if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. They might also not keep up with inflation, so the inflation could be higher than the yield, meaning you'd lose purchasing power effectively. But again, I might completely misunderstand things, but I don't think there is any investment that is absolutely risk free, which I guess is why you put it in quotation marks in the end.
- NordSteve 4y ago
  T-bills have very short duration, so interest rate changes have smaller effect on their value. Think of the duration as a lever, the longer the lever the larger the move in value that interest rate change make.
- geraldwhen 4y ago
  You are not a bank and need to ensure far less cash. https://www.treasurydirect.gov/marketable-securities/tips/ https://www.treasurydirect.gov/marketable-securities/tips/ You could buy TIPS or I-bonds.
- dmoy 4y ago
  SVB wasn't buying Treasury bills (<1 year term). They were buying notes at like 5 years and longer term bonds. So they suffer from the same type of interest rate risk, but at order of magnitude lower impact.
- Out_of_Characte 4y ago
  You're correct, but even underwater T-bills are better than holding the money. Its essentially both insurance and additional interest. the only risk is having to sell them at the wrong time.
- spaceman_2020 4y ago
  As an individual investor, you don’t have redemptions pressure from customers asking for their money back. If you fee that you don’t need the money before X years, you can get treasuries for those years and not sell them before maturity.
- toast0 4y ago
  > if interest rates rise, newer T-bills are more valuable so it'll be harder to sell the ones you have if you want to sell them before they mature. As others pointed out, T-Bill indicates a shorter term than T-Note which is shorter than T-Bond... but either way, it's not that the instruments are hard to sell, it's a very liquid market, but the prices rapidly adjust so that yield to maturity for a given maturity date is broadly similar regardless of the initial yield and coupon. It may be emotionally hard to sell and realize a loss if interest rates rise after your purchase, but it's not transactionally hard. If you are subject to a mark to maturity reporting regime, it may also look bad on your balance sheet, but I don't believe individuals would be subject to that.
dehrmann 4y ago
Unless the US hits the debt ceiling.
- ProjectArcturis 4y ago
  Then everything is fucked.
  - vasco 4y ago
    I see this type of thinking a lot online, and while it makes sense to a certain extent to not overly prepare for unlikely doomsday scenarios where "you'd have bigger problems", it still makes sense to not-overly prepare, if that makes sense. For example, failed states (even after complete destruction due to war), have a way of honoring primary residence property rights even after the rebuild of the country, many times including secondary properties that are not your primary residence (ie germany, poland after wwii, more examples exist). So if you know this history, you'd do well to make sure you own some property, not just "paper". This is only one aspect of investing, but I've seen many people claim from the same source argument things like "holding REITs is better than a home because it's way more liquid and flexible", which... yes, but.
    - dehrmann 4y ago
      Property rights remind me how most(-ish) cities are older than the countries they're in.
- dkjaudyeqooe 4y ago
  The constitution says that the US has to pay its debts, but it doesn't say that about its other expenses, so that isn't necessarily true.
ed25519FUUU 4y ago
You just have to be able to click in your password on possibly the worst designed website in finance!
- mNovak 4y ago
  You can paste the pw into the field if you edit the html!
  - quags 4y ago
    This is my method. A little edit and I don’t need to use that dumb keyboard.
  - doublerebel 4y ago
    There are autohotkey-style scripts for every OS that emulate a keyboard for paste, which can be mapped to a variation of the keyboard shortcut for paste. Very fast to install and you never have to edit html again for this purpose.
- kccqzy 4y ago
  You don't have to buy treasury bills straight from the treasury. Buy them from Schwab and other brokers to spare yourself that ugly website.

tedunangst 4y ago

It makes sense if you're worried about the uninsured value of your deposit and want it to be backed by assets with less rate risk.

rcme 4y ago

The issue with keeping money in the bank isn’t that the money is uninsured. The issue is that the money is uninsured and the bank is insolvent. Money market funds aren’t insolvent.

lowkey 4y ago
Another issue is that the FDIC insurance fund currently holds $148 Billion to protect over $17 Trillion in deposits. Where does the money come from if 0.8% insurance coverage ratio is insufficient in the event of a crisis? More money printing? More inflation?
cm2187 4y ago
Money market funds buy banks CDs and CPs.
- rcme 4y ago
  Some do, many don't. E.g. VMFXX holds government-backed debt: https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx#portfolio-composition https://investor.vanguard.com/investment-products/mutual-fun...
  - DebtDeflation 4y ago
    So does SVB. Holding Treasuries is no guarantee of solvency when their maturities are out in the future and suddenly half your depositors want to withdraw their funds today.
    - sir0010010 4y ago
      If you click on the link for VMFXX, it says that the average maturity of the US treasury debt that it holds is 13 days. The average maturity for SVB's treasury holdings, on the other hand, was more than 6 years.

hedora 4y ago

If you have $500K in savings, and move half to a money market account elsewhere, you go from 50% to 100% FDIC insured. Also, there are sweep accounts that automate this. You can use that technique to easily get $3M of FDIC insurance from a single account. They typically yield high amounts of interest, so I assume they are backed by money market accounts.

mindslight 4y ago
Sweep accounts do generally tell you at which institution the deposits are being held, because it's critically important to know if you have an account there directly, as they'd both under the same FDIC coverage.
- jlrubin 4y ago
  wouldn't those be a different category & thus get unique coverage?
  - mindslight 4y ago
    There aren't that many FDIC coverage categories. I'd guess that individual sweep accounts would end up in the revocable trust category, the same as most "regular" accounts? Or maybe sweep accounts would end up in the individual ownership category while regular accounts (with beneficiary) would be in revocable trust? This seems like the kind of question that by the time you'd benefit from knowing exactly (rather than just being overly conservative), you're paying professionals to manage all this for you. There's no need to make an amateur determination that you won't know is wrong until it's too late.