Laddered CDs

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wilsonbh
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Laddered CDs

Post by wilsonbh » Wed Sep 12, 2018 1:57 pm

I need to move some funds out of a low interest (to no interest) SAVINGS account to my Fidelity account and was considering going to Laddered CDs.

Does anyone have any thoughts on this?

Appreciate any/all feedback.

Thanks in advance.....

BW

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dm200
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Re: Laddered CDs

Post by dm200 » Wed Sep 12, 2018 1:58 pm

wilsonbh wrote:
Wed Sep 12, 2018 1:57 pm
I need to move some funds out of a low interest (to no interest) SAVINGS account to my Fidelity account and was considering going to Laddered CDs.
Does anyone have any thoughts on this?
Appreciate any/all feedback.
Thanks in advance.....
BW
Yes - this can keep risk low and increase returns.

banhbao
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Re: Laddered CDs

Post by banhbao » Wed Sep 12, 2018 2:34 pm

I recently did this with Vanguard (not Fidelity). My experience was pretty seamless. The money is transferred from your bank account to a "settlement fund" which is really like a money market account. And then after a holding period of 7 calendar days, you can purchase the CD(s).

I assume Fidelity is like Vanguard, so you are technically buying a "brokered CD" (not directly from the bank). There are advantages and disadvantages to this:

+ You can select many different lending institutions such that you never put more than 250k in a single one, and therefore everything is FDIC insured. Otherwise you'd have to go to multiple banks.
+ From my experience the rates offered by VG were comparible to what I could find directly with the best banks.
+ All your 1099 forms will come from the same place.

- If you want to sell the CD early, you can't do that directly with the Broker (if you had bought directly from the bank, you could pay a penalty and get out). What you have to do instead is sell the CD on the secondary market, and depending on the interest rate at the time of your sell you might be in a strong or weak position.

+/- This could go either way depending on your perspective, but at the end of your term the CD is not automatically renewed.
+/- The interest goes to your settlement fund. If you purchased from the bank I think it would normally be kept in the CD and you'd get compounded interest. I didn't consider this as a negative because I am looking for passive income, so I'd rather get the interest every X months rather than a lump sum at the end. But someone else may rather have the compounded interest.

Hope this helps and good luck!
Last edited by banhbao on Wed Sep 12, 2018 2:40 pm, edited 1 time in total.

triggertreat
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Re: Laddered CDs

Post by triggertreat » Wed Sep 12, 2018 2:40 pm

With Fidelity you have the option to auto roll them.

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dm200
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Re: Laddered CDs

Post by dm200 » Wed Sep 12, 2018 2:45 pm

triggertreat wrote:
Wed Sep 12, 2018 2:40 pm
With Fidelity you have the option to auto roll them.
This might be the situation where direct issue CDs from FDIC insured bank or NCUA backed credit union might be preferable to brokered CDs. Direct issue CDs can, normally, be redeemed early (with a penalty), can compound the interest and can renew automatically.

MikeG62
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Re: Laddered CDs

Post by MikeG62 » Wed Sep 12, 2018 2:46 pm

wilsonbh wrote:
Wed Sep 12, 2018 1:57 pm
I need to move some funds out of a low interest (to no interest) SAVINGS account to my Fidelity account and was considering going to Laddered CDs.

Does anyone have any thoughts on this?

Appreciate any/all feedback.

Thanks in advance.....

BW
Laddering Treasuries would also be an option. How long are you looking to tie up the funds?

Here's a recent thread on buying and laddering Treasuries at Fidelity.

viewtopic.php?f=10&t=258097&p=4110303&h ... r#p4110303
Real Knowledge Comes Only From Experience

alex11
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Re: Laddered CDs

Post by alex11 » Wed Sep 12, 2018 2:47 pm

Not to hijack the thread, but where can I find on Vanguard's Brokered CD's, whether interest is paid monthly or semi-annually?
Thank

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dm200
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Re: Laddered CDs

Post by dm200 » Wed Sep 12, 2018 2:50 pm

alex11 wrote:
Wed Sep 12, 2018 2:47 pm
Not to hijack the thread, but where can I find on Vanguard's Brokered CD's, whether interest is paid monthly or semi-annually?
Thank
The interest frequency is listed when the CD is displayed.

The frequencies are: monthly, quarterly, semiannually, annually or "at maturity". The longest term that pays at maturity is one year.

sport
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Re: Laddered CDs

Post by sport » Wed Sep 12, 2018 3:02 pm

dm200 wrote:
Wed Sep 12, 2018 2:45 pm
triggertreat wrote:
Wed Sep 12, 2018 2:40 pm
With Fidelity you have the option to auto roll them.
This might be the situation where direct issue CDs from FDIC insured bank or NCUA backed credit union might be preferable to brokered CDs. Direct issue CDs can, normally, be redeemed early (with a penalty), can compound the interest and can renew automatically.
Auto renewal of a brokered CD is not objectionable. For direct CDs, there is often a problem with auto renewal. The banks in my area advertise "special" CD rates. These rates, while maybe not the highest, are competitive. However, when these CDs auto renew (and they always do) they renew at the "regular" CD rate. These "regular" rates are not at all competitive. It seems as if the banks are hoping the account holder will not pay attention and let the CD renew at a poor rate. The system seems to be set up for the banks to take advantage of their customers, given the opportunity. For this reason, I am moving my CDs from direct to broker as they mature.

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dm200
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Re: Laddered CDs

Post by dm200 » Wed Sep 12, 2018 4:16 pm

sport wrote:
Wed Sep 12, 2018 3:02 pm
dm200 wrote:
Wed Sep 12, 2018 2:45 pm
triggertreat wrote:
Wed Sep 12, 2018 2:40 pm
With Fidelity you have the option to auto roll them.
This might be the situation where direct issue CDs from FDIC insured bank or NCUA backed credit union might be preferable to brokered CDs. Direct issue CDs can, normally, be redeemed early (with a penalty), can compound the interest and can renew automatically.
Auto renewal of a brokered CD is not objectionable. For direct CDs, there is often a problem with auto renewal. The banks in my area advertise "special" CD rates. These rates, while maybe not the highest, are competitive. However, when these CDs auto renew (and they always do) they renew at the "regular" CD rate. These "regular" rates are not at all competitive. It seems as if the banks are hoping the account holder will not pay attention and let the CD renew at a poor rate. The system seems to be set up for the banks to take advantage of their customers, given the opportunity. For this reason, I am moving my CDs from direct to broker as they mature.
You cannot actually and technically "renew" a brokered CD. The closest thing you can do is buy a new issue closest to the one maturing as soon as possible on or after the maturity date. Note also that brokered CDs pay interest to your settlement account/fund and do not compound.

sport
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Re: Laddered CDs

Post by sport » Wed Sep 12, 2018 4:42 pm

dm200 wrote:
Wed Sep 12, 2018 4:16 pm
sport wrote:
Wed Sep 12, 2018 3:02 pm
dm200 wrote:
Wed Sep 12, 2018 2:45 pm
triggertreat wrote:
Wed Sep 12, 2018 2:40 pm
With Fidelity you have the option to auto roll them.
This might be the situation where direct issue CDs from FDIC insured bank or NCUA backed credit union might be preferable to brokered CDs. Direct issue CDs can, normally, be redeemed early (with a penalty), can compound the interest and can renew automatically.
Auto renewal of a brokered CD is not objectionable. For direct CDs, there is often a problem with auto renewal. The banks in my area advertise "special" CD rates. These rates, while maybe not the highest, are competitive. However, when these CDs auto renew (and they always do) they renew at the "regular" CD rate. These "regular" rates are not at all competitive. It seems as if the banks are hoping the account holder will not pay attention and let the CD renew at a poor rate. The system seems to be set up for the banks to take advantage of their customers, given the opportunity. For this reason, I am moving my CDs from direct to broker as they mature.
You cannot actually and technically "renew" a brokered CD. The closest thing you can do is buy a new issue closest to the one maturing as soon as possible on or after the maturity date. Note also that brokered CDs pay interest to your settlement account/fund and do not compound.
Of course. I was responding to the post above where it was stated that "With Fidelity you have the option to auto roll them."
Actually, when the interest is paid to the settlement fund, it does compound. It just compounds at the yield of the settlement fund, or the yield of wherever you move the money, instead of the yield of the CD.

Murgatroyd
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Re: Laddered CDs

Post by Murgatroyd » Wed Sep 12, 2018 6:43 pm

wilsonbh wrote:
Wed Sep 12, 2018 1:57 pm
I need to move some funds out of a low interest (to no interest) SAVINGS account to my Fidelity account and was considering going to Laddered CDs.

Does anyone have any thoughts on this?

Appreciate any/all feedback.

Thanks in advance.....

BW
At present, we have 9 laddered broker CD’s in our Fidelity account. It’s so easy. When one comes due I buy another. The auto roll is a nice feature but I want to determine how much money is in each of the banks. With auto roll, I don’t believe the algorithm accounts for concentration of funds. If you need help getting started, just call the 800 number.

Dottie57
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Re: Laddered CDs

Post by Dottie57 » Wed Sep 12, 2018 6:49 pm

Murgatroyd wrote:
Wed Sep 12, 2018 6:43 pm
wilsonbh wrote:
Wed Sep 12, 2018 1:57 pm
I need to move some funds out of a low interest (to no interest) SAVINGS account to my Fidelity account and was considering going to Laddered CDs.

Does anyone have any thoughts on this?

Appreciate any/all feedback.

Thanks in advance.....

BW
At present, we have 9 laddered broker CD’s in our Fidelity account. It’s so easy. When one comes due I buy another. The auto roll is a nice feature but I want to determine how much money is in each of the banks. With auto roll, I don’t believe the algorithm accounts for concentration of funds. If you need help getting started, just call the 800 number.
Last weekend I bought a cd at Fidelity. Easy peasy.

GrowthSeeker
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Re: Laddered CDs

Post by GrowthSeeker » Wed Sep 12, 2018 7:18 pm

If you have a CD (let’s say purchased through VG or Fido), and it’s in a tIRA can you move into a Roth IRA?
Same question if RMD is needed, can you move it out to a taxable account?
Just because you're paranoid doesn't mean they're NOT out to get you.

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Kevin M
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Re: Laddered CDs

Post by Kevin M » Wed Sep 12, 2018 7:22 pm

wilsonbh wrote:
Wed Sep 12, 2018 1:57 pm
I need to move some funds out of a low interest (to no interest) SAVINGS account to my Fidelity account and was considering going to Laddered CDs.

Does anyone have any thoughts on this?
Do you pay state income tax? If so, laddering Treasuries might give you higher taxable-equivalent yields (or after-tax yields, if you prefer to think about it that way). You might get higher yields on Treasuries out to 1-year maturity even without the state tax exemption.

Examples ...

At Fidelity, 1-year new-issue CD yield is 2.45%, and they're showing 1-year Treasury at 2.56% (yield for the 1-year Treasury auctioned yesterday was 2.547%). At my marginal federal and state tax rates of 27% and 8%, the taxable-equivalent yield (TEY) of the Treasury at 2.547% is 2.86%, so quite a bit better than the CD.

New issue 2-year CD at Fidelity is 2.90% (earlier today it was 2.85%, and prior to that it had been 2.80% for weeks), and they're showing the 2-year Treasury at 2.75%. So with no state tax exemption, the 2-year CD wins, but the Treasury TEY for me is 3.09%, so for me the Treasury is a better deal.

If the yields are close, I'd prefer a Treasury over a CD, due to much higher liquidity. If for whatever reason you want to sell before maturity, it'll only cost you a few basis points to sell the Treasury based on the typical bid/ask spread. Average bid/ask spread I've seen on CDs is closer to 1%, and it could be 2% or higher, and you never know what it will be until you sell.

Once caveat about the Treasury yields displayed in the Fidelity yield summary page is that what is shown as a 1-year Treasury is more likely a 13-month Treasury, and the 2-year is more likely a 25-month, due to the date filtering they use for the summary yields.

Another caveat is that the yields displayed are for large quantities, like 200 ($200,000 face value), and the yield for smaller quantities will be lower.

If you buy at auction, you'll get the large quantity yield--i.e., the same yield as institutional investors buying millions of dollars of the same Treasury you're buying, so patiently building your ladder buying at auction could make sense.

Kevin
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Kevin M
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Re: Laddered CDs

Post by Kevin M » Wed Sep 12, 2018 7:39 pm

GrowthSeeker wrote:
Wed Sep 12, 2018 7:18 pm
If you have a CD (let’s say purchased through VG or Fido), and it’s in a tIRA can you move into a Roth IRA?
Same question if RMD is needed, can you move it out to a taxable account?
This is a completely different topic, so hopefully OP won't mind the hijack.

Although I've never done it, would imagine you could do a full or partial Roth conversion with a brokered CD in a tIRA. I just tried to initiate the process online for my Fidelity IRA, in which I own CDs, to see if I could select a CD to convert, but I got a message that I couldn't convert online. So I looked at the Fidelity IRA conversion form, and there's a section in which you can specify "partial conversion in kind", and specify the CUSIP and number of shares or "all". So it appears to me that you could do it.

Regarding taking the RMD in kind (i.e., transferring the CD to a taxable account), I found this on the Fidelity web site:
Tip: If you have investments in your retirement account that may be difficult to sell, consider transferring them in-kind to a nonretirement account. This helps satisfy your RMD (you'll still owe the taxes on the distribution), but this option allows you to stay invested in the security. The cost basis on the investment in the taxable account will be reset on the day of the transfer.
So it appears that this can be done at Fidelity as well.

Kevin
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GrowthSeeker
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Re: Laddered CDs

Post by GrowthSeeker » Mon Sep 17, 2018 5:56 am

Kevin M wrote:
Wed Sep 12, 2018 7:39 pm
GrowthSeeker wrote:
Wed Sep 12, 2018 7:18 pm
If you have a CD (let’s say purchased through VG or Fido), and it’s in a tIRA can you move into a Roth IRA?
Same question if RMD is needed, can you move it out to a taxable account?
This is a completely different topic, so hopefully OP won't mind the hijack.

Thanks for the response, Kevin. And apologies to the OP for the hijack
Just because you're paranoid doesn't mean they're NOT out to get you.

MikeG62
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Re: Laddered CDs

Post by MikeG62 » Mon Sep 17, 2018 7:52 am

Kevin M wrote:
Wed Sep 12, 2018 7:22 pm

...If you buy at auction, you'll get the large quantity yield--i.e., the same yield as institutional investors buying millions of dollars of the same Treasury you're buying, so patiently building your ladder buying at auction could make sense.

Kevin
^ Precisely what I am doing.
Real Knowledge Comes Only From Experience

wilsonbh
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Re: Laddered CDs

Post by wilsonbh » Mon Sep 17, 2018 12:29 pm

Well, I have my account with Fidelity.

Does anyone know what the face value is for their CDs? Can I buy at $1000 each?

Yes, I'm new to this stuff.

BW

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Kevin M
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Re: Laddered CDs

Post by Kevin M » Mon Sep 17, 2018 1:39 pm

wilsonbh wrote:
Mon Sep 17, 2018 12:29 pm
Well, I have my account with Fidelity.

Does anyone know what the face value is for their CDs? Can I buy at $1000 each?

Yes, I'm new to this stuff.

BW
Yes, as with bonds, quantity 1 is $1,000 face value. For new issues, this is what you'll pay. On secondary market, what you pay will depend on price and commission ($1/CD at Fidelity). For anything competitive with new-issues, price typically will be less than 100, and you will want to be paying $1,000 or less per CD after commission if comparing to a new-issue with the same maturity.

Kevin
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dm200
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Re: Laddered CDs

Post by dm200 » Mon Sep 17, 2018 3:51 pm

Kevin M wrote:
Mon Sep 17, 2018 1:39 pm
wilsonbh wrote:
Mon Sep 17, 2018 12:29 pm
Well, I have my account with Fidelity.
Does anyone know what the face value is for their CDs? Can I buy at $1000 each?
Yes, I'm new to this stuff.
BW
Yes, as with bonds, quantity 1 is $1,000 face value. For new issues, this is what you'll pay. On secondary market, what you pay will depend on price and commission ($1/CD at Fidelity). For anything competitive with new-issues, price typically will be less than 100, and you will want to be paying $1,000 or less per CD after commission if comparing to a new-issue with the same maturity.
Kevin
With Vanguard, the minimum new issue purchase is $10,000. Some issues, though, have a higher minimum to purchase.

CRTR
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Re: Laddered CDs

Post by CRTR » Mon Sep 17, 2018 4:54 pm

Fidelity is easy to do it with . . . but you might not want to . . . . I helped a friend do it last year. You might want to consider other destinations. I use www.depositaccounts.com to get an idea of what rates are available and used that as my benchmark. Currently, at Fidelity 2.45% is the best I could find for a one year CD. There are >20 banks and credit unions with rates 2.75-2.6% on depositaccounts . . . . .

As to how it's done, there's a nice simple discussion here: viewtopic.php?f=1&t=244871&p=3901638#p3901638

wilsonbh
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Re: Laddered CDs

Post by wilsonbh » Tue Sep 18, 2018 8:06 am

So if a CD is offered at 2.00 % return for a $1000 CD, does that mean you get $20 for the 3 months time if the Maturity is 3 months?

Stupid question I know .....

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peterinjapan
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Re: Laddered CDs

Post by peterinjapan » Tue Sep 18, 2018 8:23 am

I love the Fidelity Laddered CD tool. It's "set and forget" and I have one in my IRA.

https://fixedincome.fidelity.com/ftgw/f ... -new-issue

AlohaJoe
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Re: Laddered CDs

Post by AlohaJoe » Tue Sep 18, 2018 8:42 am

wilsonbh wrote:
Tue Sep 18, 2018 8:06 am
So if a CD is offered at 2.00 % return for a $1000 CD, does that mean you get $20 for the 3 months time if the Maturity is 3 months?

Stupid question I know .....
No, you would get (approximately) $5. The interest rate is for an entire year. If you hold it less than a year, you get a fraction of it.

wilsonbh
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Re: Laddered CDs

Post by wilsonbh » Tue Sep 18, 2018 11:13 am

AlohaJoe wrote:
Tue Sep 18, 2018 8:42 am
wilsonbh wrote:
Tue Sep 18, 2018 8:06 am
So if a CD is offered at 2.00 % return for a $1000 CD, does that mean you get $20 for the 3 months time if the Maturity is 3 months?

Stupid question I know .....
No, you would get (approximately) $5. The interest rate is for an entire year. If you hold it less than a year, you get a fraction of it.
OK, I suspected as much. Not sure it's worth it for me to kill all my liquidity for less than $100. Currently holding a little less than $100K in savings but will be needing it sometime around February 2019 (5 months) to help purchase a house. Not sure it's worth the aggravation and risk to move it out of savings to CDs. But I sure do hate seeing 56 cent interest payouts from the bank. I remember the days when a Savings account was ridiculed for paying 5 3/4% interest rates. Oh how I miss those days.....

bradshaw1965
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Re: Laddered CDs

Post by bradshaw1965 » Tue Sep 18, 2018 11:18 am

peterinjapan wrote:
Tue Sep 18, 2018 8:23 am
I love the Fidelity Laddered CD tool. It's "set and forget" and I have one in my IRA.

https://fixedincome.fidelity.com/ftgw/f ... -new-issue
That's a really nice tool, thanks for the pointer.

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Kevin M
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Re: Laddered CDs

Post by Kevin M » Tue Sep 18, 2018 1:35 pm

wilsonbh wrote:
Tue Sep 18, 2018 11:13 am
AlohaJoe wrote:
Tue Sep 18, 2018 8:42 am
wilsonbh wrote:
Tue Sep 18, 2018 8:06 am
So if a CD is offered at 2.00 % return for a $1000 CD, does that mean you get $20 for the 3 months time if the Maturity is 3 months?

Stupid question I know .....
No, you would get (approximately) $5. The interest rate is for an entire year. If you hold it less than a year, you get a fraction of it.
OK, I suspected as much. Not sure it's worth it for me to kill all my liquidity for less than $100. Currently holding a little less than $100K in savings but will be needing it sometime around February 2019 (5 months) to help purchase a house. Not sure it's worth the aggravation and risk to move it out of savings to CDs. But I sure do hate seeing 56 cent interest payouts from the bank. I remember the days when a Savings account was ridiculed for paying 5 3/4% interest rates. Oh how I miss those days.....
Vanguard Prime money market yield is 2.10%, so you can do better than the 3-month CD with no loss of liquidity. If you pay state income tax, consider Vanguard Treasury money market. The SEC yield is 1.98%, but at my marginal tax rates of 27% federal and 8% state, it's a taxable-equivalent yield (TEY) of 2.22%, so even better than Prime, and safer as well. Minimum for Treasury MM is $50K, but that would work for you.

Kevin
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mervinj7
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Re: Laddered CDs

Post by mervinj7 » Tue Sep 18, 2018 2:06 pm

At Fidelity, you can use SPRXX as your money market fund in a Cash Management Account. The chief benefit is that its liquid and shows up as available cash. That is, if you write a check (e.g. down payment), transfer funds, or purchase assets, Fidelity will automatically liquidate it for you. Current yield is 1.84% which is less than Vanguard Prime Money Market (VMMXX) fund's yield of 2.10% due to the higher ER but only slightly less than a brokered 3 month CD's 1.90%.
https://fundresearch.fidelity.com/mutua ... /31617H201

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