Cash in Schwab account - How to earn best interest rate?

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teelainen
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Cash in Schwab account - How to earn best interest rate?

Post by teelainen »

If someone has cash in their Schwab account that is going to be used to buy a home sometime in the next 6-12 months, what is the best way to earn the highest possible interest rate for that chunk of cash right now?

It needs to be something that is some sort of cash equivalent like treasuries, money market, short-term government, CD, etc.
bh1
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Re: Cash in Schwab account - How to earn best interest rate?

Post by bh1 »

Well, I use the money market account at the moment, with some relatively small fraction of that in VOO (SP500 ETF). Sort of like an AA to get the risk profile I want. I did buy a CD two months ago just to familiarize myself with the process, but with rising interest rates I lost money compared to the money market and so lost interest in CDs (harhar).

Higher money market interest rates can likely be found elsewhere than Schwab, but again, moving money is not worth the hassle for me.

None of the above should be considered a suggestion; just saying what I do in the same situation.
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teelainen
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Re: Cash in Schwab account - How to earn best interest rate?

Post by teelainen »

bh1 wrote: Sun Nov 20, 2022 1:36 am Well, I use the money market account at the moment, with some relatively small fraction of that in VOO (SP500 ETF). Sort of like an AA to get the risk profile I want. I did buy a CD two months ago just to familiarize myself with the process, but with rising interest rates I lost money compared to the money market and so lost interest in CDs (harhar).

Higher money market interest rates can likely be found elsewhere than Schwab, but again, moving money is not worth the hassle for me.

None of the above should be considered a suggestion; just saying what I do in the same situation.
For your Schwab account, how do you put your unused cash in a money market account?
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Re: Cash in Schwab account - How to earn best interest rate?

Post by bh1 »

teelainen wrote: Sun Nov 20, 2022 1:59 am For your Schwab account, how do you put your unused cash in a money market account?
SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
Shallowpockets
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Shallowpockets »

How much money are you talking about? A home down payment could be anything, I guess, but I will go with 20%. So let’s say the home cost is $1 million. 20% is $100,000.
The best CD rate I have seen was 5.18%. So you reap $5k for a one year CD. However, OP may need the money sooner and could not tie up his money for that long. So any interest rate will be considerably less than 5.18%.
Therefore, a quest to find a great rate of return for your money is doomed to not produce enough to make a lot of work on this issue worth it.
I have a Schwab account and I have not seen any rate that is worth more than a few dollars overall.
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Rainier
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Rainier »

Buy US Treasuries at auction to match your time horizon. According to Fidelity US Treasuries 1 year and less pay the same as CDs and are infinitely more liquid and are state income tax free. Even if you lived in a state with no income tax I'd take a slightly lower rate on the UST for the added liquidity over a CD.
toddthebod
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Re: Cash in Schwab account - How to earn best interest rate?

Post by toddthebod »

SWVXX is the answer unless it's over a million dollars or you are in the top tax bracket, in which case one of their other money market funds may be a bit better: https://www.schwab.com/money-market-funds
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MorgansRun
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Re: Cash in Schwab account - How to earn best interest rate?

Post by MorgansRun »

bh1 wrote: Sun Nov 20, 2022 2:32 am
teelainen wrote: Sun Nov 20, 2022 1:59 am For your Schwab account, how do you put your unused cash in a money market account?
SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
+1. This is where my cash sits.
Kagord
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Kagord »

Also, with SWVXX, remember settlement times, IE, if you sell a regular stock with 0 cash on hand, and buy SWVXX on the same day from those expected proceeds, you may get a trading violation. Also monitor your settlement timing.
MnD
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Re: Cash in Schwab account - How to earn best interest rate?

Post by MnD »

If last pricing from Friday hold on Monday.....

If you're sure about you 6-12 month window, you can purchase a 6-month T-bill in your Schwab account yield to maturity 4.63% certain.
It's the T-bill that was auctioned last Monday, maturing 5/18/23, minimum quantity $50K.
Minimum quantity $1K can be had at $4.62% so not a big hit for smaller quantities. :D

When markets open tomorrow...
Click Trade - Bonds
Then select the 6-month Treasury from the yield grid.

OR

Since Monday is a 6-month T-bill auction day, you can place an order right now For the auction tomorrow.
Click Trade - Bonds - then click the "Treasury Auctions" link just under the yield grid at the lower left.
Your yield results from auction will be very similiar to what the yield for the 6-month indicates from the grid tomorrow.

4.63% compares favorably to the current yield for SWVXX money market fund 3.73% which will fluctuate over the next 6-12 months.
The t-bill interest is also state-tax exempt which is not true for SWVXX.

So SWVXX is not the answer if 6-months is the soonest you you need the funds.
If you were certain about 12 months, you could do a little better with a 12-month Treasury bill.
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jeffyscott
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Re: Cash in Schwab account - How to earn best interest rate?

Post by jeffyscott »

bh1 wrote: Sun Nov 20, 2022 2:32 am SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
It's not "pretending to be a stock fund" :confused , it is a money market mutual fund.
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bh1
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Re: Cash in Schwab account - How to earn best interest rate?

Post by bh1 »

jeffyscott wrote: Sun Nov 20, 2022 10:30 am
bh1 wrote: Sun Nov 20, 2022 2:32 am SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
It's not "pretending to be a stock fund" :confused , it is a money market mutual fund.
I wrote that specifically because the word 'mutual' wouldn't come to mind. :oops: After all, there is not much mutuality going on in a money market fund. If you sell your 'shares', I don't care. I don't know about anyone else, but I find the idea of a money market mutual fund really, really weird. As far as I know, most investment houses don't do such a thing. SWVXX feels like a clever hack by some random software engineer. Because it is a mutual fund, transfers are not immediate.
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Nate79
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Nate79 »

bh1 wrote: Sun Nov 20, 2022 10:56 am
jeffyscott wrote: Sun Nov 20, 2022 10:30 am
bh1 wrote: Sun Nov 20, 2022 2:32 am SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
It's not "pretending to be a stock fund" :confused , it is a money market mutual fund.
I wrote that specifically because the word 'mutual' wouldn't come to mind. :oops: After all, there is not much mutuality going on in a money market fund. If you sell your 'shares', I don't care. I don't know about anyone else, but I find the idea of a money market mutual fund really, really weird. As far as I know, most investment houses don't do such a thing. SWVXX feels like a clever hack by some random software engineer. Because it is a mutual fund, transfers are not immediate.
No clue what you are talking about here. All of the brokerages have their money market mutual funds just like Schwab.
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Calvert
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Calvert »

MnD wrote: Sun Nov 20, 2022 9:50 am If last pricing from Friday hold on Monday.....

If you're sure about you 6-12 month window, you can purchase a 6-month T-bill in your Schwab account yield to maturity 4.63% certain.
It's the T-bill that was auctioned last Monday, maturing 5/18/23, minimum quantity $50K.
Minimum quantity $1K can be had at $4.62% so not a big hit for smaller quantities. :D

When markets open tomorrow...
Click Trade - Bonds
Then select the 6-month Treasury from the yield grid.

OR

Since Monday is a 6-month T-bill auction day, you can place an order right now For the auction tomorrow.
Click Trade - Bonds - then click the "Treasury Auctions" link just under the yield grid at the lower left.
Your yield results from auction will be very similiar to what the yield for the 6-month indicates from the grid tomorrow.

4.63% compares favorably to the current yield for SWVXX money market fund 3.73% which will fluctuate over the next 6-12 months.
The t-bill interest is also state-tax exempt which is not true for SWVXX.

So SWVXX is not the answer if 6-months is the soonest you you need the funds.
If you were certain about 12 months, you could do a little better with a 12-month Treasury bill.
6-month T-bill is a great suggested option!

No doubt 4.63% is better than 3.73% ... but I wanted to point out that over 6 months for $100,000 that is $450 ... or $75 a month.
I'm biased towards flexibility ... so I like to know what I am losing when not locking in. :D

And of course, rates will (likely) be different next month ... and you could miss/make a few extra thousand with a lock.
It gets ugly finding the best ... so I settle for good enough.
just tryin' to understand the obvious
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Calvert
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Calvert »

Nate79 wrote: Sun Nov 20, 2022 11:33 am
bh1 wrote: Sun Nov 20, 2022 10:56 am
jeffyscott wrote: Sun Nov 20, 2022 10:30 am
bh1 wrote: Sun Nov 20, 2022 2:32 am SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
It's not "pretending to be a stock fund" :confused , it is a money market mutual fund.
I wrote that specifically because the word 'mutual' wouldn't come to mind. :oops: After all, there is not much mutuality going on in a money market fund. If you sell your 'shares', I don't care. I don't know about anyone else, but I find the idea of a money market mutual fund really, really weird. As far as I know, most investment houses don't do such a thing. SWVXX feels like a clever hack by some random software engineer. Because it is a mutual fund, transfers are not immediate.
No clue what you are talking about here. All of the brokerages have their money market mutual funds just like Schwab.
I use Schwab. IF you have the money in a sweep ... which does not require settlement time ... you get 0.5% or so. IF you go with SWVXX, you need to sell and be aware of settlement time before you can use the funds. I think this was the initial point someone was making. :sharebeer
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FedGuy
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Re: Cash in Schwab account - How to earn best interest rate?

Post by FedGuy »

Shallowpockets wrote: Sun Nov 20, 2022 6:32 am How much money are you talking about? A home down payment could be anything, I guess, but I will go with 20%. So let’s say the home cost is $1 million. 20% is $100,000.
I don't think that's right.
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Re: Cash in Schwab account - How to earn best interest rate?

Post by jeffyscott »

Calvert wrote: Sun Nov 20, 2022 11:41 am
Nate79 wrote: Sun Nov 20, 2022 11:33 am
bh1 wrote: Sun Nov 20, 2022 10:56 am
jeffyscott wrote: Sun Nov 20, 2022 10:30 am
bh1 wrote: Sun Nov 20, 2022 2:32 am SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
It's not "pretending to be a stock fund" :confused , it is a money market mutual fund.
I wrote that specifically because the word 'mutual' wouldn't come to mind. :oops: After all, there is not much mutuality going on in a money market fund. If you sell your 'shares', I don't care. I don't know about anyone else, but I find the idea of a money market mutual fund really, really weird. As far as I know, most investment houses don't do such a thing. SWVXX feels like a clever hack by some random software engineer. Because it is a mutual fund, transfers are not immediate.
No clue what you are talking about here. All of the brokerages have their money market mutual funds just like Schwab.
I use Schwab. IF you have the money in a sweep ... which does not require settlement time ... you get 0.5% or so. IF you go with SWVXX, you need to sell and be aware of settlement time before you can use the funds. I think this was the initial point someone was making. :sharebeer
Sure but that's no different than any other money market fund, that's not your settlement fund. It would be the same at Vanguard if you held VMRXX, for example.

While Fidelity will automatically sell purchased money market fund shares for you to cover trades, I believe that is still a sale of fund shares that settles the next day :?: . I think that the only difference is just that they enter the trade for you automatically, not positive of that since it's not something that I have ever done.
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Calvert
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Calvert »

jeffyscott wrote: Sun Nov 20, 2022 12:13 pm Sure but that's no different than any other money market fund, that's not your settlement fund. It would be the same at Vanguard if you held VMRXX, for example.

While Fidelity will automatically sell purchased money market fund shares for you to cover trades, I believe that is still a sale of fund shares that settles the next day :?: . I think that the only difference is just that they enter the trade for you automatically, not positive of that since it's not something that I have ever done.
I was just trying to untangle what was being said. I think it is a valid warning if someone does not understand that there will be a "1 working day delay". This is of course on both getting the money in and out. "Out" could be an issue if the OP waits until a Friday but needs to wire funds on a Monday :D .
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Re: Cash in Schwab account - How to earn best interest rate?

Post by DetroitRick »

We're basically in the same boat, buying home next year (presumably somewhere in the 6-12 month range as well, although that has become a moving target for us).

Cash that we need to hold for that purpose is mainly in short-term US Treasuries purchased on the secondary market (maturing in the 3-4 month range right now - just to be safe because we are still guessing on an exact purchase date). As we get closer, we will likely migrate more towards their money market fund (Schwab Value Advantage SWVXX). They also offer government and muni money market funds, but MY after-tax yield with Treasuries and SWVXX is better at the moment.

The amount involved is material for us because our purchase will be in cash (with a pledged asset credit line as a short-term bridge), so I am reaching for as much yield as our personal safety priorities will allow. I expect while doing this to never need the money in under 30 days anyway, and both instruments I'm using are readily accessible (T+1, plus perhaps allowing for trading flexibility with those Treasuries if market conditions should necessitate for whatever reason).
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Doc »

Regarding 26 week T-Bills when the cash is needed in 6 to 12 months.

Better to buy a 52 week bill now for the higher yield. If you buy your house in 6 months just sell the T-Bill. You will probably get the same income as if you had bought a 26 week bill at the start.

On the other side of the coin if you buy a 26 week bill now and do not buy your house in 26 weeks what do you do? Buy another 26 week bill? Then what if DW finds the greatest house 13 weeks after that? You now have to sell the 26 week early.

Just buy the 52 week bill now and "for get about it".
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Re: Cash in Schwab account - How to earn best interest rate?

Post by bh1 »

Nate79 wrote: Sun Nov 20, 2022 11:33 am
bh1 wrote: Sun Nov 20, 2022 10:56 am
jeffyscott wrote: Sun Nov 20, 2022 10:30 am
bh1 wrote: Sun Nov 20, 2022 2:32 am SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
It's not "pretending to be a stock fund" :confused , it is a money market mutual fund.
I wrote that specifically because the word 'mutual' wouldn't come to mind. :oops: After all, there is not much mutuality going on in a money market fund. If you sell your 'shares', I don't care. I don't know about anyone else, but I find the idea of a money market mutual fund really, really weird. As far as I know, most investment houses don't do such a thing. SWVXX feels like a clever hack by some random software engineer. Because it is a mutual fund, transfers are not immediate.
No clue what you are talking about here. All of the brokerages have their money market mutual funds just like Schwab.
Banks have money market accounts. Those are not mutual funds.
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Nate79 »

bh1 wrote: Mon Nov 21, 2022 9:20 pm
Nate79 wrote: Sun Nov 20, 2022 11:33 am
bh1 wrote: Sun Nov 20, 2022 10:56 am
jeffyscott wrote: Sun Nov 20, 2022 10:30 am
bh1 wrote: Sun Nov 20, 2022 2:32 am SWVXX, which pretends to be a stock fund. So, get same-day trades in before market close, &c.
It's not "pretending to be a stock fund" :confused , it is a money market mutual fund.
I wrote that specifically because the word 'mutual' wouldn't come to mind. :oops: After all, there is not much mutuality going on in a money market fund. If you sell your 'shares', I don't care. I don't know about anyone else, but I find the idea of a money market mutual fund really, really weird. As far as I know, most investment houses don't do such a thing. SWVXX feels like a clever hack by some random software engineer. Because it is a mutual fund, transfers are not immediate.
No clue what you are talking about here. All of the brokerages have their money market mutual funds just like Schwab.
Banks have money market accounts. Those are not mutual funds.
Sure. What does that have to do with what you wrote? All of the investment houses have money market mutual funds just like SWVXX.
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Re: Cash in Schwab account - How to earn best interest rate?

Post by UpperNwGuy »

SWVXX.
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teelainen
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Re: Cash in Schwab account - How to earn best interest rate?

Post by teelainen »

If 100% of our cash is in SWVXX, can we buy other stocks immediately? Or do we first need to liquidate some SWVXX before we can buy any stocks?
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Re: Cash in Schwab account - How to earn best interest rate?

Post by galawdawg »

teelainen wrote: Tue Nov 22, 2022 1:54 pm If 100% of our cash is in SWVXX, can we buy other stocks immediately? Or do we first need to liquidate some SWVXX before we can buy any stocks?
I know that if you are purchasing additional shares of another mutual fund that you already hold, you can place a "Sell and Buy Another" trade order where the sale of SWVXX and the purchase of the other mutual fund will occur on the same trading day. So if you placed such an order before 4pm today, the sale of SWVXX would execute today as would the purchase of the other mutual fund, without waiting additional time for settlement.

Since I don't own individual stocks, I don't have any information on whether the same "Sell and Buy Another" trade process will work with those.
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Re: Cash in Schwab account - How to earn best interest rate?

Post by jeffyscott »

teelainen wrote: Tue Nov 22, 2022 1:54 pm If 100% of our cash is in SWVXX, can we buy other stocks immediately? Or do we first need to liquidate some SWVXX before we can buy any stocks?
I think you can do it. I believe that the SWVXX counts as cash for purposes of entering buy orders. You would need to then manually sell enough SWVXX to cover the stock purchase. The stock purchase would settle in 2 days and SWVXX in 1.

You can test this by putting in a buy order, but not going past the confirmation page to actually submit it. Schwab is very good at giving messages regarding trade issues. In this case, I think you would see a message reminding you to sell enough of the money market fund to cover the trade.
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Kevin M
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Kevin M »

SWVXX 7-day SEC yield was 3.74%.

Yield on 1-month Treasury is about 3.97% (today 1-month CMT yield), which is 4.51% taxable-equivalent yield (TEY) at my 22% and 9.3% marginal tax rates. I don't think any of SWVXX is exempt from state tax in my state of CA.

The 3-month CMT yield is 4.40%, so 5.00% TEY for me, and the 6-month is 4.68%, so 5.31% TEY for me.

No need to wait for auctions, but you can if you want, and I think Schwab offers auto roll for bills bought at auction, but I have no direct experience with it.

I probably would roll T bills rather than use the MM fund. Last time I bought Treasuries at Schwab they had the best pricing for small quantities, unlike Fidelity or Vanguard.

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Re: Cash in Schwab account - How to earn best interest rate?

Post by smectym »

Kevin M wrote: Tue Nov 22, 2022 7:23 pm SWVXX 7-day SEC yield was 3.74%.

Yield on 1-month Treasury is about 3.97% (today 1-month CMT yield), which is 4.51% taxable-equivalent yield (TEY) at my 22% and 9.3% marginal tax rates. I don't think any of SWVXX is exempt from state tax in my state of CA.

The 3-month CMT yield is 4.40%, so 5.00% TEY for me, and the 6-month is 4.68%, so 5.31% TEY for me.

No need to wait for auctions, but you can if you want, and I think Schwab offers auto roll for bills bought at auction, but I have no direct experience with it.

I probably would roll T bills rather than use the MM fund. Last time I bought Treasuries at Schwab they had the best pricing for small quantities, unlike Fidelity or Vanguard.

Kevin
I agree that right now T-bills to have the yield advantage over most lagging money market funds (the situation may reverse the next time yields start heading down).

PS, not to turn the thread into a debate over the merits of Treasury Direct, but once we start talking about “pricing” one naturally thinks of TD which is just free, whether your T-bill purchase is $100 or $5M. However, I understand there is a perceived convenience premium to buying treasuries from a brokerage.
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Re: Cash in Schwab account - How to earn best interest rate?

Post by jeffyscott »

smectym wrote: Wed Nov 23, 2022 8:15 am PS, not to turn the thread into a debate over the merits of Treasury Direct, but once we start talking about “pricing” one naturally thinks of TD which is just free, whether your T-bill purchase is $100 or $5M. However, I understand there is a perceived convenience premium to buying treasuries from a brokerage.
You can only buy at auction at TD. Buying at auction in most brokerage accounts, including Schwab, is also free. So the pricing for the securities, that are available at both, is exactly the same at Schwab (as well as Vanguard, Fidelity, and others) as it is at TD. The only difference with auction purchases is the brokerages only allow increments of $1000.
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Re: Cash in Schwab account - How to earn best interest rate?

Post by mptfan »

Shallowpockets wrote: Sun Nov 20, 2022 6:32 amSo let’s say the home cost is $1 million. 20% is $100,000.
20% of $1 million is $200,000.
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Re: Cash in Schwab account - How to earn best interest rate?

Post by Kevin M »

smectym wrote: Wed Nov 23, 2022 8:15 am
Kevin M wrote: Tue Nov 22, 2022 7:23 pm <snip>
I probably would roll T bills rather than use the MM fund. Last time I bought Treasuries at Schwab they had the best pricing for small quantities, unlike Fidelity or Vanguard.
<snip>
PS, not to turn the thread into a debate over the merits of Treasury Direct, but once we start talking about “pricing” one naturally thinks of TD which is just free, whether your T-bill purchase is $100 or $5M. However, I understand there is a perceived convenience premium to buying treasuries from a brokerage.
Of course I was referring to the secondary market, where one gets different prices/yields for different minimum quantities; I refer to this as the large/small-quantity spread. When I was buying at Schwab in 2019, the highest yield (lowest price) usually was for min qty 1, while at Fidelity and Vanguard you usually pay more for min qty 1 than for min qty 100 (or some other large number). Another element of pricing is the bid/ask spread, but I usually don't pay much attention to that.

Since everyone gets the same price/yield at auction, there is no large/small-qty spread, and of course there is no bid/ask spread either. As already pointed out, you can buy at auction at the big three brokers and get the same price as at TD.

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Re: Cash in Schwab account - How to earn best interest rate?

Post by Piehole »

If I were the OP, I’d just buy a T-Bill with a duration that matches his time horizon. If there is an auction in the next day or two, I’d buy then. If not, I’d buy immediately in the secondary market. I’ve found that often it cost more to wait for an auction, than pay the minuscule spread and get the money earning interest immediately. Plus, a T-Bill will pay more interest than a money market fund. And I find the money market funds expense ratio to be quite annoying. (SWVXX, 34 basis points - ouch)
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Re: Cash in Schwab account - How to earn best interest rate?

Post by jeffyscott »

jeffyscott wrote: Tue Nov 22, 2022 5:19 pm
teelainen wrote: Tue Nov 22, 2022 1:54 pm If 100% of our cash is in SWVXX, can we buy other stocks immediately? Or do we first need to liquidate some SWVXX before we can buy any stocks?
I think you can do it. I believe that the SWVXX counts as cash for purposes of entering buy orders. You would need to then manually sell enough SWVXX to cover the stock purchase. The stock purchase would settle in 2 days and SWVXX in 1.

You can test this by putting in a buy order, but not going past the confirmation page to actually submit it. Schwab is very good at giving messages regarding trade issues. In this case, I think you would see a message reminding you to sell enough of the money market fund to cover the trade.
I just tested this myself and it does work. There were two pertinent messages from Schwab on the "verify order" screen (at which point you can just click on "do not place order", if you are just testing this). They clearly explain what you need to do if you do go ahead and place the order:
1.Caution: This buy order was accepted without sufficient settled funds to trade in your account. If you subsequently sell this security without first delivering sufficient cash by settlement date, you may incur a trading restriction requiring settled cash up front for future purchases. (AC176)
2.You are placing an order without sufficient free cash to cover it. Please remember to deposit sufficient funds or sell shares of your Schwab Purchased Money Funds to cover this order. (AC3165)
And so it goes, And so it goes, And so it goes, And so it goes, But where it's goin' no one knows
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