FZDXX- 1.81%. Security? [Fidelity Treasury Money Market]

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protagonist
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FZDXX- 1.81%. Security? [Fidelity Treasury Money Market]

Post by protagonist » Thu May 24, 2018 11:12 pm

Today I moved all my cash in Fidelity from FZFXX (Fidelity Treasury MM Fund- 1.37% yield) to FZDXX (Fidelity MM Premium Class- 1.81%).

My understanding is that you can buy FZDXX with an initial deposit of $100K, after which there is no minimum balance and no other disadvantages vs. FZFXX.

I was told that both MM accounts are equally insured (SIPC not FDIC).

Am I missing anything here?

And is there any significant disadvantage in security , compared with keeping cash in an external bank account? (I know there are bank accounts that are offering slightly better interest rates).
Last edited by protagonist on Fri May 25, 2018 7:28 am, edited 1 time in total.

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aj76er
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Re: FZDXX- 1.81%. Security?

Post by aj76er » Fri May 25, 2018 12:21 am

FZFXX has ~50% in U.S. Treasuries. E/R = 42bps
FZDXX has ~30% in CDs and ~30% in commercial paper. E/R = 0.3%

So, FZDXX is a little more risky with lower ER which results in higher yield.

Neither is FDIC insured. But I would consider both as very safe.

As an alternative, for virtually no risk and about the same yield, you could purchase 3mo. T-bills directly at auction through Fidelity. I believe the next auction is coming up on 5/29.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

protagonist
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Re: FZDXX- 1.81%. Security?

Post by protagonist » Fri May 25, 2018 7:27 am

aj76er wrote:
Fri May 25, 2018 12:21 am
FZFXX has ~50% in U.S. Treasuries. E/R = 42bps
FZDXX has ~30% in CDs and ~30% in commercial paper. E/R = 0.3%

So, FZDXX is a little more risky with lower ER which results in higher yield.

Neither is FDIC insured. But I would consider both as very safe.

As an alternative, for virtually no risk and about the same yield, you could purchase 3mo. T-bills directly at auction through Fidelity. I believe the next auction is coming up on 5/29.
Thanks.
I use my Fidelity account as a checking account, so 3 mo T-bills would not work.
I realize there is no FDIC insurance, but the rep told me that it had "SIPC insurance", which I realize only provides coverage if Fidelity goes bankrupt. This was always my understanding, but it was presented differently to me over the phone. I think the rep did not really understand the concept.

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corn18
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Re: FZDXX- 1.81%. Security?

Post by corn18 » Fri May 25, 2018 8:15 am

protagonist wrote:
Thu May 24, 2018 11:12 pm

My understanding is that you can buy FZDXX with an initial deposit of $100K, after which there is no minimum balance and no other disadvantages vs. FZFXX.
I don't think this is true. Might want to call FIDO to verify.

protagonist
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Re: FZDXX- 1.81%. Security?

Post by protagonist » Fri May 25, 2018 9:04 am

corn18 wrote:
Fri May 25, 2018 8:15 am
protagonist wrote:
Thu May 24, 2018 11:12 pm

My understanding is that you can buy FZDXX with an initial deposit of $100K, after which there is no minimum balance and no other disadvantages vs. FZFXX.
I don't think this is true. Might want to call FIDO to verify.
I think you are right, and I was given wrong information by the Fidelity rep. I specifically asked him: "So if my balance drops to $1 or less, would I still get the stated yield?" and he confirmed that I would. But I just looked up FZDXX and it states "required balance: $10000". I don't know what happens if that required balance is not met. I will have to give Fidelity another call. Thanks.

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aj76er
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Re: FZDXX- 1.81%. Security?

Post by aj76er » Fri May 25, 2018 10:23 am

protagonist wrote:
Fri May 25, 2018 7:27 am
aj76er wrote:
Fri May 25, 2018 12:21 am
FZFXX has ~50% in U.S. Treasuries. E/R = 42bps
FZDXX has ~30% in CDs and ~30% in commercial paper. E/R = 0.3%

So, FZDXX is a little more risky with lower ER which results in higher yield.

Neither is FDIC insured. But I would consider both as very safe.

As an alternative, for virtually no risk and about the same yield, you could purchase 3mo. T-bills directly at auction through Fidelity. I believe the next auction is coming up on 5/29.
Thanks.
I use my Fidelity account as a checking account, so 3 mo T-bills would not work.
I realize there is no FDIC insurance, but the rep told me that it had "SIPC insurance", which I realize only provides coverage if Fidelity goes bankrupt. This was always my understanding, but it was presented differently to me over the phone. I think the rep did not really understand the concept.
So, I'm curious - would you be using the money market like a savings account In your brokerage or within the checking account itself? Or would you be switching the core position in the checking account over to the money market? I've actually been thinking of doing something similar for a while, as it would help consolidate and simplify financial accounts. At Fido, I think the following are viable options for a savings account-like vehicle:

* A money market such as the ones you suggested. SPRXX might another decent option for you. ~1.7% yield with a $2500 min
* A short term Bond fund, such as FSITX FSBAX (note: There may be short-term redemption fees)
* A short-term bond ETF, such as SHV, SHY, or SUB (or a combination)

* Edited to correct fund name
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

protagonist
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Re: FZDXX- 1.81%. Security?

Post by protagonist » Fri May 25, 2018 1:26 pm

aj76er wrote:
Fri May 25, 2018 10:23 am
protagonist wrote:
Fri May 25, 2018 7:27 am
aj76er wrote:
Fri May 25, 2018 12:21 am
FZFXX has ~50% in U.S. Treasuries. E/R = 42bps
FZDXX has ~30% in CDs and ~30% in commercial paper. E/R = 0.3%

So, FZDXX is a little more risky with lower ER which results in higher yield.

Neither is FDIC insured. But I would consider both as very safe.

As an alternative, for virtually no risk and about the same yield, you could purchase 3mo. T-bills directly at auction through Fidelity. I believe the next auction is coming up on 5/29.
Thanks.
I use my Fidelity account as a checking account, so 3 mo T-bills would not work.
I realize there is no FDIC insurance, but the rep told me that it had "SIPC insurance", which I realize only provides coverage if Fidelity goes bankrupt. This was always my understanding, but it was presented differently to me over the phone. I think the rep did not really understand the concept.
So, I'm curious - would you be using the money market like a savings account In your brokerage or within the checking account itself? Or would you be switching the core position in the checking account over to the money market? I've actually been thinking of doing something similar for a while, as it would help consolidate and simplify financial accounts. At Fido, I think the following are viable options for a savings account-like vehicle:

* A money market such as the ones you suggested. SPRXX might another decent option for you. ~1.7% yield with a $2500 min
* A short term Bond fund, such as FSITX FSBAX (note: There may be short-term redemption fees)
* A short-term bond ETF, such as SHV, SHY, or SUB (or a combination)

* Edited to correct fund name
For years I have used FZFXX (and its previous incarnation) as my primary checking account, even when it was accruing essentially no interest. I have a separate high yield online bank tied to my fidelity account where I keep the bulk of my cash. I would transfer just enough into Fidelity to cover a month or so of expenses at a time. That has worked extremely well...transfers between the two have rarely if ever taken more than one working day.... though if I could keep everything at Fidelity it would obviously be better. There are online banks offering 2% interest, or close to it. (I also have an account at a local bank that I just use for convenience when necessary). At 1.81% I probably wouldn't bother with external accounts if I didn't have to monitor my balance (the difference between 1.81% and 2.01%, for example, is only $20 of interest per $10K per year). But for large amounts it would be nice to know you have FDIC. I don't know what happens if you go below the minimum balance....I will have to call Fido at some point and figure out what to do from there.

An advantage to using Fidelity as your primary checking account is that they reimburse all ATM fees and don't "nickel-and-dime" you...plus if you accidentally have the equivalent of an "overdraft" you are covered (assuming you have enough other Fido investments) and only have to pay margin interest until you get back into positive territory, rather than usurious bank fees and credit issues.

Having to maintain a minimum balance in my Fidelity "checking account" would defeat its purpose, so I will probably switch back to FZFXX once I invest most of my "windfall"... I rarely have kept more than a few thousand dollars in FZFXX for more than a week at a time. For now FZDXX will work as a "holding tank" since I recently received a large amount from a house sale, until I invest it all.

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indexfundfan
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Re: FZDXX- 1.81%. Security?

Post by indexfundfan » Sun May 27, 2018 11:50 am

Here is the minimum balance requirement in the prospectus

Fidelity may deduct a small balance maintenance fee of $12.00 from a fund balance with a value of less than $2,000 in shares. It is expected that fund balances will be valued after November 1 but prior to December 31 of each calendar year. Fund positions opened after September 30 will not be subject to the fee for that calendar year. The fee, which is payable to Fidelity, is designed to offset in part the relatively higher costs of servicing smaller fund positions. This fee will not be deducted from fund positions opened after January 1 of that calendar year if those positions use certain regular investment plans.

If your fund balance falls below $10,000 worth of shares ($500 for fund balances in Fidelity® Simplified Employee Pension-IRA, Keogh, and Investment Only Retirement accounts) for any reason and you do not increase your balance, Fidelity may sell all of your shares and send the proceeds to you after providing you with at least 30 days' notice to reestablish the minimum balance. Your shares will be sold at the NAV, minus any applicable shareholder fees, on the day Fidelity closes your fund position. Certain fund positions are not subject to these balance requirements and will not be closed for failure to maintain a minimum balance.


So I think it is safe to just keep it above $2,000, at least between Nov 1 and Dec 31. If Fidelity wants to enforce the $10,000 minimum, you will have a 30-day notice to either top-up or revert to SPRXX.
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wintermute
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Re: FZDXX- 1.81%. Security?

Post by wintermute » Sun May 27, 2018 12:24 pm

+1 on buying Tbills at auction, but GABXX is also an option. It's useful if you can't trade bonds or buy Vanguard's VUSXX treasury MM fund (like at Wellstrade). Current 7-day for GABXX is 1.69%, ER is 0.08%, vs 1.74% and 0.09% for VUSXX.

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indexfundfan
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Re: FZDXX- 1.81%. Security?

Post by indexfundfan » Sun May 27, 2018 12:45 pm

wintermute wrote:
Sun May 27, 2018 12:24 pm
+1 on buying Tbills at auction, but GABXX is also an option. It's useful if you can't trade bonds or buy Vanguard's VUSXX treasury MM fund (like at Wellstrade). Current 7-day for GABXX is 1.69%, ER is 0.08%, vs 1.74% and 0.09% for VUSXX.
Where can you buy GABXX?
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wintermute
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Re: FZDXX- 1.81%. Security?

Post by wintermute » Tue May 29, 2018 10:06 pm

indexfundfan wrote:
Sun May 27, 2018 12:45 pm
Where can you buy GABXX?
Wellstrade, at least. I don't know about other brokerages.

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