Fidelity core money market interest rates
I was considering opening a Fidelity brokerage account as a place to park cash for my rainy-day fund. I already have a brokerage account that pays a decent interest rate on cash (4.17 at Siebert), but had seen an online ad for Fidelity that promised 4.65%, which is about what Siebert pays on my Roth account (4.67%).
I naively presumed that this meant I could just deposit cash in a Fidelity account and that was the interest rate I would get. It turns out that that is not quite true. If you simply deposit cash in your Fidelity brokerage account you get the Fidelity FCASH interest rate, which was about 2.95% on Thursday. That is much worse than what I get by default in my Siebert brokerage account.
In order to get the "Fidelity Cash Reserves" interest rate of 4.65% (the only interest rate that they advertised, you have to explicitly transfer your cash into the FDRXX fund. Granted, you can set up an automated investment plan to transfer cash on a regular, timed basis, but you can't set up the account to automatically sweep all cash to FDRXX on a daily basis as it is deposited. That sucks. I don't have that burden with my Siebert account.
FDRXX is what Siebert uses for cash in my Roth IRA. Siebert uses Fidelity Prime Reserves (FPRXX) for "core" (default) cash.
The bottom line is that if you blindly open a Fidelity brokerage account and deposit cash, you will not get the advertised interest rate.
In my book I'd call this classic "bait and switch" advertising sleaze. The web site "pitch" says "Fidelity Cash Reserves" in a way that strongly suggests that this is what your cash yields, with not even a footnote to warn you that your cash really gets the "FCASH" yield. I call this sleazy. Fidelity: do the right thing and tell prospective customers right up front the yield and the proper fund name for cash deposited in the account.
I may still use my Fidelity brokerage account to park cash, but I'm really annoyed that Fidelity is making me do extra, manual steps and that they resorted to this sleazy marketing.
Here's the Fidelity web site where I saw the misleading advertising pitch: https://www.fidelity.com.
It turns out that I had a Fidelity brokerage account and didn't even realize it. This happened automatically since I selected Fidelity to administer my employee stock purchase plan (ESPP) stock distributions. There is a separate account for the ESPP itself, but they created a brokerage account as well.
I've had a rollover IRA account with Fidelity since 1999, but had never done non-retirement business with them. Actually, I've been indirectly doing business with them since Siebert uses National Financial Services to administer their accounts and NF is a subsidiary of Fidelity.
I may also stick with the Fidelity account since I should be able to do direct deposit for savings and actually link it to a bank checking account to do free transfers to and from my checking acount, in addition to having checks and a debit card for the brokerage account. I haven't verified any of this, but this is what Fidelity has led me to believe. Even though Fidelity automatically opened the account for me, I've heard not a peep from them with regards to checkwriting or getting an ATM card, let alone how to do free transfers to and from my bank checking account. Not even a single email "spam" message. It's as if they don't want my business. I have $2,500 cash sitting in my bank checking account earmarked for a Fidelity account, but now I'm not so sure that Fidelity deserves my business.
Fidelity should have mailed or emailed me a welcome message and given me a menu of account options to choose from. I'm in the process of incrementally navigating through their web site to find all of the features one by one, but they should have given me an easy path and notification about this process right up front.
posted by Jack Krupansky @ 3:20 PM
7 Comments
7 Comments:
You can also call Fidelity to switch your "core" account from FCASH to you Fidelity Cash Reserve. New cash would default into the new "core" account.
Well, I *did* ask them if I could do exactly that and the representative insisted that I could *not* do so (and I tried asking the same question several diferent ways), other than to set up an investment plan that would periodically "invest" a designated amount of my core cash into FDRXX.
I guess I need to call them again and get a "second" opinion on the matter since not every representative has the same depth of expertise.
The bottom line is that they aren't making this easy let alone automatic. I hate that kind of sleazy approach.
Does anybody out there actually know somebody at Fidelity (or even work at Fidelity) who can let me (us all) know how to resolve this matter?
The real bottom line is that I put the cash in my Siebert account (taxable and Roth), so that Fidelity indirectly gets my money in FPRXX and PDRXX, but it doesn't appear in a Fidelity "account".
-- Jack Krupansky
In the Fidelity account, you can't specify cash reserves (FDRXX), but you *can* specify one of several tax-free choices like a municipal money market fund. Right now the after-tax equivalent is actually a little better (if your tax bracket is at least 28%).
Nonetheless, it would be nicer to be able to use cash reserves -- which is the way it used to work.
Good point, but it's not always quite true.
Fidelity doesn't offer a Washington state minicipal money market fund (no state income tax), but it does offer the Federal Tax-Free Money Fund, which has a 7-day yield of 3.19% and which Fidelity says is equivalent to a 4.91% taxable yield. That sounds great. Unfortunately, they neglect to put a footnote on that number, but if you scroll down and read their fine print you will find a non-foot note that indicates that the 4.91% number is for a Federal tax rate of 35%. The taxable equivalent yields for the other tax rates are: 4.25% tax equivalent yield for the 25% tax rate, 4.43% yield for 28%, 4.76% for 33%, and 4.91% for 35%.
Your taxable income (as a single individual) would have to be over $336,550 before you would be in the 35% marginal tax bracket.
So, as I had always suspected, the tax-free money market offerings are a not-so-bad deal for people in the top tax bracket, but not-so-attractive for anybody in the middle of the middle class.
At 4.43% tax equivalent yield, Fidelity's offering is certainly less appealing to people in my own situation than ShareBuilder (4.54%), PayPal (4.95%), or 28-day Treasury Direct T-bills (4.81%), although very modestly better than the 4.37% that I get in my taxable Siebert account with Fidelity FPRXX.
Of course, if you are already doing a lot of your financial business with Fidelity anyway, a little bit of shortfall on free cash isn't necessarily a big deal and the convenience of keeping all of your money under the one Fidelity "roof" might outweigh more than a little bit of free-cash yield loss.
And note that cash in a retirement account doesn't have these issues at all since it's yield is not taxable.
In my case, the question is whether Fidelity is the place I wish to stash taxable cash that doesn't yet have a permanent home.
And my big beef remains the fact that Fidelity is making this process of storing free cash so difficult for us "middle" guys.
In any case, thanks for the comment. It may have additional value for other readers.
-- Jack Krupansky
Hi, I just called Fidelity about the interest rate I am getting in my core brokerage account. All my brokerage money was in FCASH and got 3.29% for Aug 06. I asked if I could put that money into Fidelity Cash Reserves (FDRXX). They said yes and transferred me to their Trades desk. FDRXX earned 4.98% for Aug 06. Both FDRXX and Paypal are money market funds therefore nether is FDIC insured. I would call Fidelity's Trade desk and ask again to buy FDRXX with your core brokerage money that you have in FCASH. Just remember that each time you add new money to your brokerage account (like your $2500) it will automatically go into FCASH. You will then need to call to have them buy FDRXX with that new money. Hope this helps!
Thanks for the feedback. I do intend to talk with Fidelity, one of these days.
-- Jack Krupansky
In principle, a good happen, support the views of the author
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