I’d managed to miss the memo that money market funds have such high rates now. I’ll have to consider doing the same, honestly…
It pays 4.5% which only the very best savings accounts can match.
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.
4%: https://www.sofi.com/banking/savings-account/
3.75%: 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%.
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.
(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.)
No idea what risks might be associated with everyone now treating these mutual funds as de facto bank accounts...
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-manag...
[2] http://personal.fidelity.com/misc/ekits/pdf/safeguarding_you...
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/doc...
My understanding is that it's protection, but not ironclad.
https://en.wikipedia.org/wiki/Securities_Investor_Protection...
https://www.sipc.org/for-investors/what-sipc-protects
> Money market mutual funds, often thought of as cash, are protected as securities by SIPC.
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
FDIC insurance won't protect you from inflation, either. You asserted the money market stuff isn't protected; it is, either via the FDIC or the SIPC.
One could have argued the same thing for non-FDIC bank deposits - the worst case for SVB depositors in the collapse would have looked a lot like a failed money-market fund, 94 or 96 or 97 cents on the dollar. That's still a lot different from 100, and it's a realistic thing to happen in a market crash, which do appen.
> FDIC insurance won't protect you from inflation, either. You asserted the money market stuff isn't protected; it is, either via the FDIC or the SIPC.
FDIC guarantees you 100 cents on the (possibly inflated) dollar. Money market funds don't.
3 weeks ago investment A and investment B both had a realistic worst case of ~95 cents on the dollar, with speculation that the government would back it to 100 but no firm guarantee. Now investment A has that firm guarantee and investment B doesn't. Surely you can see what that means for their relative valuation.
Money market accounts are protected by FDIC: 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.