Shifting cash from Fidelity to GMAC and Capital One

Having verified that my new GMAC Bank and Capital One Bank Online Banking money market accounts are operational and properly linked to my Fidelity account, I went ahead and moved the bulk of my Fidelity cash, which had been in the Fidelity Money Market Fund (SPRXX) to these new accounts. I kept a residual amount in my Fidelity core cash account, which is Fidelity Municipal Money Market (FTEXX).

SPRXX has a yield of only 2.41%. FTEXX has a yield (federal tax free) of 0.70%. My new GMAC Bank money market account, which has full FDIC protection, currently has a rate of 3.68% or 3.75% APY. My new Capital One account, also with full FDIC protection, currently has a rate of 3.34% or 3.40% APY.

I also have another pile of cash in a Sovereign Bank money market account that has a rate of 3.20% or 3.25% APY.

GMAC clearly pays a better yield, but even with full FDIC protection I would feel a little less comfortable with all of my cash in one basket. If for no other reason than the potential for identity theft.

CDs offer rates at 4.00% and higher, but my financial situation has too much uncertainty to make any commitments of six months or longer. Or even three months.

I am still keeping most of my stock (Microsoft) at Fidelity.

I wonder if the current rate differential will continue, or if money market funds will once again overtake bank deposit accounts. For that to happen, the banking system would have to dramatically stabilize and the Federal Reserve would have to raise short rates above 4.00% again. I can see that happening in a couple of years, or maybe even a year if we see fiscal stimulus of $400 billion or greater over the coming year.

-- Jack Krupansky