Most money market fund and brokerage sweep yields moved lower in the latest week, driven by the Federal Reserve's July 31 rate cut. The notable exception was Fidelity's brokerage sweep rate, which jumped from 0.79% to 1.07% last week. (See our August 8, 9 and 12 Links of the Day, "Fidelity Now Sweeps to Money Fund," "WSJ on Fidelity: Cash's Sweeping Giant" and Barron's Clarifies Fidelity Sweep Push.") Fidelity announced the sweep move, which took aim at Schwab, E*TRADE and TD Ameritrade, with a full page ad ("Your cash never had it so good") in the Wall Street Journal, but over the weekend Charles Schwab returned fire with a full page ad in the Sunday New York Times. So begins what we're calling the "Cash of the Titans."
Schwab's advertisement, which is also featured on www.schwab.com, ignores the issue of default "sweep" accounts and compares Schwab Value Advantage Money Fund's 2.04% yield (as of 8/8) to Fidelity Money Market Fund's 1.98%. (It also compares the yield to JPMorgan Liquid Assets MMF's 1.85%.) Under the headline, "With Schwab, earning more on your cash is just the beginning," it says, "Get more when you invest your cash with Schwab," and emphasizes a satisfaction guarantee.
Overall money market mutual fund rates, dipped back below 2.00% for the first time in a year. Our Crane 100 Money Fund Index, inched below 2.00% Friday to 1.99% (and fell one bp to 1.98% yesterday), while our broader Crane Money Fund Average dropped to 1.85%. (It fell below 2.00% just prior to the Fed cut on July 25.) The Crane 100 was 2.18% at the end of June and was 2.22% two months ago. Money fund yields should continue inching lower in coming weeks, but Brokerage Sweep rates could rebound under pressure for Fidelity's marketing push.
Our latest weekly Brokerage Sweep Intelligence publication shows that six brokerages out of 11 cut their sweep rates in the latest week. (Four cut rates last week.) Ameriprise, E*Trade, Morgan Stanley, Raymond James, TD Ameritrade, UBS all lowered rates on some tiers in the past week, while Fidelity hiked all of theirs. Ameriprise cut rates almost across the board, with everything except their $500K balances dropping by 5 basis points. On $100K balances, they shifted from 0.25% to 0.20%.
E*Trade cut rates across the board with their $100K balance dropping from 0.15% to 0.08%. TD Ameritrade also trimmed its rates; their $100K balance tier now pays 0.07%. UBS cut its rates for balances under $250K to 0.15% from 0.18% (they cut rates on higher tiers too), and Morgan Stanley also dropped rates for all balances except $1 million. Their $100K balance shifted from 0.15% to 0.10%.
Our Crane Brokerage Sweep Index, an average of the 11 largest brokerage firms' "sweep" rates, is currently showing a rate of 0.25% for balances under $100K, up 3 bps from 0.22% last week. (Fidelity's hike in sweep rates increased all the averages under $100K, but averages for $100K and higher all fell.) The average FDIC sweep rate is now 0.27% for balances of $100K to under $250K, 0.33% for balances under of $250K to under $500K, 0.39% for balances of $500K to under $1 million, 0.56% for balances of $1 million to under $5 million and 0.69% for balances over $5 million.
Fidelity is by far the highest FDIC-insured sweep rates among the $100K balance tier, with a yield of 1.07% as of August 9. (Note: This is comparing the FDIC sweeps; Fidelity also has an even higher yielding money fund sweep for new accounts.) RW Baird occupies the No. 2 spot in the weekly survey, paying out 0.55% on its $100K tier. Raymond James and Wells Fargo rank third with rates of 0.25% at the $100K tier, followed by Ameriprise , with a 0.20% rate. Schwab was fifth, yielding 0.18% on balances of $100K, with UBS in sixth yielding 0.15%. Morgan Stanley offers 0.10%, while E*Trade follows with 0.08%. Ameritrade pays 0.07% and Merrill ranks last with a rate of just 0.05%.
Mutual fund news source ignites added to the list of articles covering Fidelity's cash sweep increase with the piece, "Our Cash Sweep is 10X Better Than Yours: Fidelity." They tell us, "`Fidelity recently upped the ante for its competition for retail retirement accounts, making a high-yielding money market fund the default vehicle for cash. The Boston-based firm this week announced that its Government Money Market Fund is now the cash sweep default for its clients. Fidelity made that product the default cash vehicle for its brokerage account customers in the third quarter of 2015, but only did so for retail retirement accounts in May, according to the company."
The ignites article says, "While the bank products often used for sweeps are FDIC-insured, they have been criticized for the low rates customers collect. Further, the amount of spread that banks retain from such products can make them a lucrative option for brokerages that use them."
It quotes our Peter Crane, president of Crane Data, "Brokerages have become highly dependent on the revenue they earn from spreads on bank sweep programs.... Fidelity's action opens up a new front in the brokerage wars.... Fidelity, Schwab, TD Ameritrade and others have been fighting over $4.95 trade [commissions] and zero-fee ETFs for years now. It was just a matter of time before somebody realized where the real money was being made."
Ignites adds, "Schwab states, 'By comparison, purchased money market funds will generally pay higher interest yields than any sweep vehicle.' How brokerage and retail retirement account providers will respond to Fidelity's recent sweep change is uncertain, Crane says. Most likely, he says, 'they're going to ignore it and hope Fidelity doesn't carry the weight that they did 20 years ago.'"
