Investors' Business Daily (IBD) recently featured a piece entitled, "How The Best Online Brokers Boost Your Cash Holdings which tells us, "Online brokers face stiff competition when it comes to paying clients to park their idle cash. They've had to up the ante as interest rates have risen and investors had plenty of cash management options to choose from. Cash management options are a priority for online investors. So say the customers who decided the winners of IBD's 12th annual Best Online Brokers survey. Cash-heavy traders who have been sitting on the sidelines expect higher rates on their cash balances. Online brokerages are competing with 5% interest rates on Treasury bills and some CDs, as 2023 interest rates hit levels not seen in more than 20 years."
It explains, "Meanwhile, yields on uninvested brokerage cash can vary from less than 1% to around 5%. Some institutions have increased yields and offered products to retain clients' dough, while others still pay less than 1%. Based on the overall scores of the eight online brokers that qualified for the survey analysis, IBD identified its four Best Online Brokers for 2024. They are Ally Invest, Fidelity Investments, Charles Schwab (SCHW) and Merrill Edge. Ally Invest is the brokerage arm of Ally Bank/Ally Financial (ALLY). Merrill is part of Bank of America (BAC)."
The article states, "IBD's 2024 Best Online Brokers survey asked respondents to rate their primary brokers on 20 attributes. One criteria was cash management choices and their level of trust in that area. The survey found online brokerages Fidelity, Robinhood (HOOD), Ally Invest, and Vanguard highly ranked in this category."
It comments, "According to Bankrate, the national average annual percentage yield on a money market account was less than 0.5%, while the national average on a savings account was slightly more than 0.5% in January. Yes, less than 1%. With 11 Federal Reserve rate hikes in the past two years and the federal funds rate at 5.25% to 5.50%, that may be surprising. But select money market funds are paying around 5%, including low-risk government securities funds."
IBD says, "Fidelity has ranked among IBD's Best Online Brokers for all 12 years the survey has been conducted. A company spokesperson said that for retail brokerage and retirement accounts, Fidelity works on the side of investors by automatically directing investors' cash into a money market fund. When you open a Fidelity non-retirement account, it establishes what is called a core position, used for cash transactions and uninvested cash. You have the choice of two high-yield government money market funds to hold your surplus cash. Its default fund is the Government Money Market Fund (SPAXX) or you can opt to have your balance put into the Treasury Money Market Fund (FZFXX). Both have an APY of around 5%. Not bad. These funds have an expense ratio around 0.42% to 0.46%."
They also write, "Online brokerage Vanguard offers six money market funds with a $3,000 minimum investment requirement. One of its high-yielding funds is the Federal Money Market Fund (VMFXX) with a 5.29% APY and an 0.11% expense ratio. This is the default fund used for Vanguard brokerage account settlement funds.... Vanguard's Cash Reserves Federal Money Market (VMRXX) pays a 5.30% compound yield with a 0.10% expense ratio. A third option is the Treasury Money Market Fund (VUSXX), with a 5.3% annualized yield and a 0.09% expense ratio."
IBD adds, "Next is Ally, which took top honors for overall customer experience score in this year's Best Online Brokers survey. Ally Invest's no-minimum balance Money Market account earns around 4.4% APY. Also, Ally is currently offering a 12-month CD with a 5.00% APY. And its savings account pays 4.35%. Ally offers products specifically for IRA accounts including a 5.25% high-yield CD. It literally pays to find out how much your uninvested cash is earning."
In other news, Pensions & Investments posted a piece on money funds around the globe entitled, "Higher-for-longer interest rates sustain money market fund inflows." They explain, "Money market funds are expected to continue seeing strong inflows even as the Federal Reserve's rate-hiking cycle comes to an end, sources agreed. And while inflows could slow when the Fed eventually moves to cut interest rates, managers are confident that demand will remain high relative to the low-rate period of 2008-2022. In March and April 2020, money market fund assets leapt 16.17% and 12.13% month-on-month as the stock market plummeted, and even though there hasn't been double-digit growth since, total assets have continued to climb. Between June and December 2023, the total assets grew 8.39%. Over the past five years, total assets grew to $5.89 trillion as of Dec. 29, from $3.6 trillion on Dec. 31, 2019."
P&I tells us, "Money market funds are currently yielding 'very nicely' at 5.5%, said Philippe Billot, head of money markets at Pictet Asset Management, in an interview in Singapore. 'So it's very competitive vs. deposits. And on top of liquidity, also in terms of risk management, money market funds are relatively sophisticated instruments,' he said.... 'Interest rates were almost zero in U.S. dollars and negative in European currencies and I'm not sure central banks were happy with (that) situation,' he added. At Pictet AM, which managed 230 billion Swiss francs ($251.7 billion) in assets as of Sept. 30, money market funds are diversified and assessed for credit and liquidity risk."
They continue, "The fund manager also actively manages its duration. Over the past two years, Pictet AM has kept a low duration positioning in its U.S. dollar money market portfolio, with about $10 billion of the $57 billion under management in money markets having a duration of less than 10 days. The duration has been increased now to 48 days and can go up to 60 days, 'which is overall not a lot,' Billot admitted. 'But when you manage $60 billion it can be sensitive -- every basis point of a basis point (matters). We live in a very small world in money markets but with huge amounts."
This article adds, "Money market inflows are likely to continue to be strong in 2024, agreed Thomas Kaegi, chair of the Investment Management Association of Singapore and managing director, head of asset management for Singapore and Southeast Asia at UBS. Looking back following the rate hikes of 2006 and 2007, flows to money markets continued for some time even when interest rates plateaued and started to fall, he said. Fund managers that offer money market funds have benefited from this.... [W]ith cash rates obviously many people are moving from equities or fixed income to money market funds."
