$ out of Schwab Money Market and into Schwab Checking?

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Topic Author
Mollinska
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$ out of Schwab Money Market and into Schwab Checking?

Post by Mollinska »

I have a Schwab Brokerage account, Schwab Money Market Account, and Schwab checking account.

I keep my "emergency fund" in Schwab Money Market account. I use the Schwab checking account to pay my mortgage (and it's where my pay goes).

Both accounts (Schwab money market and Schwab checking) are earning .03% interest.

The checking account doesn't charge any service fees or have an account minimum.

The money market account has a net expense ratio of .34%.

In this time of such low interest, I think it makes sense to take my money out of the Schwab money market (where I'm paying .34%) and put this money into my Schwab checking account (which doesn't have an expense ratio at all).

Before I do this, what am I missing? Is my logic off?

Thanks for letting me know your thoughts!
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galawdawg
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by galawdawg »

I don't believe it really matters. The yield is after expense ratios and waivers. So if the yield on the MM and the interest rate on the checking are both 0.03%, your returns would be the same.

Otherwise with a yield of 0.03% and an ER of 0.34%, you'd be paying Schwab, not the other way around.
Topic Author
Mollinska
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by Mollinska »

Thanks for reading my question, galawdawg!

My question is about the expense ratio of .34%. Specifically:

I'm paying the expense ratio of .34% to earn .03% in the Schwab money market.

I'm not paying anything to earn .03% in the Schwab checking account.

I *think* it makes sense to take my money out of the Schwab money market and put it in the Schwab checking account (thereby saving myself the .34% expense ratio).

Please check my logic and tell me if switching is a bad idea (like, what am I missing here, if anything? It seems I'm paying .34% to earn .03%... and if I put my money in the Schwab checking account, I won't be paying anything to earn .03%). :happy
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RickBoglehead
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by RickBoglehead »

You're not understanding.

The rate earned is after expenses. You aren't paying anything. They yield the same, so you are indifferent.
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DetroitRick
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by DetroitRick »

I have the same accounts, and agree that it doesn't matter. The 0.03% yield on the purchased money market fund is the 7-day yield and is NET of expenses. As galawdog points out, otherwise you would be paying them at that 0.34% expense ratio, and you aren't.

I just leave the funds in whichever place I need them, typically in that money market fund. There is, I suppose, the FDIC coverage issue on Schwab checking, but I consider this very immaterial.
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galawdawg
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by galawdawg »

The 0.03% yield on the money market is AFTER the expense ratio. So you are netting the same return on the Schwab money market that you receive on the Schwab checking. Every $100,000.00 in the money market will earn $2.50 a month. Every $100,000.00 in checking will earn $2.50 a month.

Otherwise, if the yield on the money market was BEFORE the expense ratio, at the end of each month you would PAY Schwab $25.83 for each $100,000.00.

So at the current rate and the current yield, the checking and money market are paying the same. Does that make sense?
Last edited by galawdawg on Wed Jun 16, 2021 9:46 am, edited 1 time in total.
Topic Author
Mollinska
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by Mollinska »

Aha! Thank you so much! You've answered my question! I didn't realize the .03% yield had already accounted for the .34% expense ratio. You've both helped me a lot.

Thank you, again!
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retired@50
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by retired@50 »

Mollinska wrote: Wed Jun 16, 2021 9:36 am Thanks for reading my question, galawdawg!

My question is about the expense ratio of .34%. Specifically:

I'm paying the expense ratio of .34% to earn .03% in the Schwab money market.

I'm not paying anything to earn .03% in the Schwab checking account.

I *think* it makes sense to take my money out of the Schwab money market and put it in the Schwab checking account (thereby saving myself the .34% expense ratio).

Please check my logic and tell me if switching is a bad idea (like, what am I missing here, if anything? It seems I'm paying .34% to earn .03%... and if I put my money in the Schwab checking account, I won't be paying anything to earn .03%). :happy
This can be a tricky one to grasp...

Even though you're used to thinking about expense ratios as a cost, which you pay, which reduce your returns, in the case of a money market fund it's the yield that matters. .03% in this case. When comparing Money Market accounts, or accounts that maintain a $1 share price, focus on the yield.

For practically every other mutual fund you'll invest in, your instincts to consider the expense ratio are spot on, because those funds are following a stock or bond index where the share price fluctuates, and costs matter.

If you're really looking to improve your return on the money, then a money market account isn't really the place to be right now. Have you considered an online savings account like Ally? They are currently paying .50%.

See link: https://www.ally.com/bank/online-savings-account/

Regards,
This is one person's opinion. Nothing more.
Topic Author
Mollinska
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by Mollinska »

Retired@50, I had not considered Ally. Thank you for the link! I'm going there now...
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Elric
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by Elric »

Mollinska wrote: Wed Jun 16, 2021 9:49 am Retired@50, I had not considered Ally. Thank you for the link! I'm going there now...
+1 for Ally. I use Schwab as my brokerage and I'm quite happy with them. But the yield on their money market and sweep accounts is abysmal. Keep emergency funds in an account that pays decent interest, like Ally. Also, consider CD's if you won't need all of your emergency funds at once, or no-penalty CD's.
"the remedy to be applied is more speech, not enforced silence." Supreme Court Justice Louis Brandeis
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8foot7
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by 8foot7 »

Just use Schwab Checking. Ally isn't paying enough to make it worth opening another account, dealing with transfers and transfer timing, etc.
The difference between Schwab and Ally is 39 cents per $1,000 in your emergency fund per month.
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LilyFleur
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by LilyFleur »

Would you happen to have access to a Stable Value Fund in a 401k?

I am keeping more cash in my Stable Value Fund right now as the earnings are better than money markets. In Schwab I've been holding index funds--SCHB and SCHD-- and have earned far more on those than I was earning in a money market at Schwab.
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galawdawg
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by galawdawg »

LilyFleur wrote: Wed Jun 16, 2021 11:50 am ... In Schwab I've been holding index funds--SCHB and SCHD-- and have earned far more on those than I was earning in a money market at Schwab.
Of course you have, those are equity index funds. :happy

I hold VTSAX and my returns on that also far exceed anything on any money market! :D

This is OP's emergency fund which should be held in liquid cash or cash equivalents. Not invested in the stock market.
123
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by 123 »

If you hold funds in a PURCHASED Schwab MMF you should be aware that at Schwab the purchased MMFs are generally not "Sweepable" meaning that you have to (actively yourself) sell shares to have cash available for the checking feature. Fidelity will liquidate purchased MMF positions to pay checks but Schwab doesn't. Last year I wrote a small check on a Schwab account and ended up with a margin loan because Schwab doesn't automatically sweep funds from purchased MMFs to pay checks.
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Elric
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by Elric »

8foot7 wrote: Wed Jun 16, 2021 11:42 am Just use Schwab Checking. Ally isn't paying enough to make it worth opening another account, dealing with transfers and transfer timing, etc.
The difference between Schwab and Ally is 39 cents per $1,000 in your emergency fund per month.
Just FYI, one can set up at Schwab to automatically sweep any cash from distributions in an account to one outside bank account at the end of each month.
"the remedy to be applied is more speech, not enforced silence." Supreme Court Justice Louis Brandeis
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LilyFleur
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by LilyFleur »

galawdawg wrote: Wed Jun 16, 2021 12:17 pm
LilyFleur wrote: Wed Jun 16, 2021 11:50 am ... In Schwab I've been holding index funds--SCHB and SCHD-- and have earned far more on those than I was earning in a money market at Schwab.
Of course you have, those are equity index funds. :happy

I hold VTSAX and my returns on that also far exceed anything on any money market! :D

This is OP's emergency fund which should be held in liquid cash or cash equivalents. Not invested in the stock market.
:thumbsup

My son is saving up quite a substantial emergency fund (for a recent college graduate). He is young, doesn't own a house, and could live with me if he lost a job or had a major illness. I'm wondering if it is OK for him to put part of that emergency fund in an equity index fund. Not a great time to buy right now, but perhaps in the next dip...
TropikThunder
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by TropikThunder »

Mollinska wrote: Wed Jun 16, 2021 9:14 am I have a Schwab Brokerage account, Schwab Money Market Account, and Schwab checking account.

I keep my "emergency fund" in Schwab Money Market account. I use the Schwab checking account to pay my mortgage (and it's where my pay goes).
Just to point out: a money market is a fund not an account. I believe you mean your brokerage money is in the Schwab money market fund.

Why not just use the High Yield Savings? It’s yield is 0.05% rather than 0.03% and is immediately linked to the checking.
123 wrote: Wed Jun 16, 2021 12:34 pm If you hold funds in a PURCHASED Schwab MMF you should be aware that at Schwab the purchased MMFs are generally not "Sweepable" meaning that you have to (actively yourself) sell shares to have cash available for the checking feature.
This is an important point. At Schwab it doesn’t work like a settlement fund you may see at other brokerages. If I have money in the Money Market Fund and want to move it to checking, it can take a couple days. That’s another reason I just use their Savings Account.
8foot7 wrote: Wed Jun 16, 2021 11:42 am Just use Schwab Checking Savings.
Fixed that for you. :P
UpperNwGuy
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Re: $ out of Schwab Money Market and into Schwab Checking?

Post by UpperNwGuy »

I have both a brokerage and a checking account at Schwab. I won't park any cash in either the money market or the checking account. The yields are simply too low. I will point out, however, that you should be focusing on the yield, not on the expense ratio of the money market fund.
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