Just received a letter from my brokerage firm (Oppenheimer). Our account cash balances will now sweep into this Advantage Bank Deposit Program, rather than the money market they've been swept into. Big difference is that we will now be paid under 1% interest (unless you have over a million bucks, where you're earn 2.78%), whereas the previous cash balances earned much more in money market (3.67% on last statement). When I called, I talked to some aid who tried to tell me that this was SOOO much better for the clients in that the Advantage program was FDIC insured, blah, blah. To me, it seems like a way for Oppenheimer to invest our cash balances and earn money off them, while giving us peanuts. Maybe I'm just misinterpreting things, but I'm going to try to talk to our actual broker today, not an assistant. In any case, we don't have a choice of this sweep. Any comments or similar situations out there? Am I missing something? SandyBeth
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I don't think you are. Other brokerages have done this, including OptionsXpress, where I have an account. Can you buy a money market fund with your cash?
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You're not missing anything, that I see, except that interest rates are currently very low for ready cash. Purchasing an independent money market mutual fund is not much of an improvement, in my experience, and involves looking at fund prospectii, but you could inquire.
A few years ago I had a mm fund as the only one available, but when it dropped to 0.14% I got nervous about the spectre of "breaking the buck" (failing to hold the par value thus losing principal). I didn't like the policies at that institution, and expedited a transfer. Trying to look on the bright side of your "new improved" sweep, you do not have to worry about your principal under 100k.
Depending on your anticipated use of the funds, you might consider looking into a bank account and signing up for Treasury Direct, which allows you to automatically purchase T-Bills at auction. I've forgotten the amount, but that service is commission-free under (I think) 100k, and possibly that ceiling has been raised. The forms (downloadable) I saw were a bit daunting, but someone somewhere at the bank must know how to do it.
The larger issue you bring up is something I've been watching since the 1980's, that even though monopolies do not theoretically exist in fact (or are regulated), a lot of industry participants either talk to each other or watch what each other is doing, then move in the same direction (as in compensation committees who site "peer groups," banks who bought CDO's, the current liquidity crisis, even the price of foods, and so on). This is such a complex set of issues, and so easily subject to personal bias interpretation, that I'm not sure at all how to talk about it, but societies have a tendency to stagnate under a "status quo" or "business as usual" mentality. In the 1980's, the then Chairman of Merrill Lynch, Don Reagan (who later was called to serve in the Ron Reagan Cabinet), took the "status quo" away from banks with the Cash Management Account. Earlier in the century, it was A.P. Giannini (founder of Bank of America) who took the status quo away from banks, opening accounts for the common man - a philosophy which still persists and has flourished.
Just be careful, in today's hopefully temporary environment of crisis disruption in liquidity. Don't sacrifice safety of principal for an extra 0.5% interest.
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