Fixed Income Products

You are not likely to get higher interest rates with your requirement. You want low trading fee and high interest rates, sure, we all want that. I too have money market accts that pay higher, but not from inside an IRA.

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My E-Trade IRAs have a choice of money market funds. But the interest rate varies so that doesn't necessarily meet the OP's requirement.

-Will

william dot trice at ngc dot com

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E*Trade Bank is currently paying 3.15% on demand deposits. I assume they'll let you open an IRA account. -- Doug

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The scenario you're describing is the reason I suggest that people look closely at money-market rates when choosing a discount broker. Saving a couple bucks per trade may be nothing compared to the "lost income" from a chronically lousy MM rate.

A money-market fund would meet your criteria of "no time limit", and that's a common way to get a better rate - use something other than the "default" sweep fund. But it's a hassle and could introduce other costs. When you want to buy another investment, you'd need to sell enough of the money-market fund to provide the needed cash to settle your trade. For some MM funds, there's a minimum trade in & out of the fund. And each trade in and out might trigger a ticket charge. As an example, Vanguard's money-market funds are likely to be "non-NTF" meaning you pay a trade fee every time you buy or sell them. If the ticket fee is say $10 in both directions that might eat up the rate advantage. Check that though - review Scottrade's list of NTF (no transaction fee) money-market funds to see if any have good rates.

As others have suggested the easiest answer may be simply using another IRA custodian. If enough people head for the doors because of lousy MM rates, perhaps the brokerage firms will pay better rates. Before you do so, call and ask -- TD Ameritrade had a not-so-advertised better fund available for IRAs that they pulled out of their pocket when I called and said "I'm yanking my accounts, what are you doing to do about it?"

-Tad

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Amen to that! When account balances get into the 100k+ range, trading charges constitute fractions of a percent of the account balance. Yet, because the fees are up front and clearly shown on statements, people often throw a tantrum. Unless you're doing a lot of trading, there are simply too many other concerns that carry far greater weight (like money market rates).

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Discount brokerage firms catering to active traders often pay low interest on cash balances. At least for a taxable account, it's useful to have more than one broker and to sweep cash using ACH to the brokerage that has better interest rates.

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There's a "follow the money" answer too...when you see brokerage firms report their income recently, their ability to borrow on the cheap and lend at higher rates, has been keeping the numbers up. Example, Schwab's Q1-2008 income statement, where they break income down by segment...

revenue, $510 million, interest expense $91 million - good business to be in! Total profit for the quarter was just $305 million. Trading revenue (not income, just revenue) was only $246 million. Point being, trading commissions are a bit like the loss-leader at a supermarket, the $1.99/gallon milk that gets you in the door. It's not how most brokerage firms really make their money, and the ways they do make money have to come out of account holders' pockets - such as low MM rates on core cash balances. As B pointed out a low MM rate might be tied to low commissions, for active traders who don't care because they don't keep much in cash...but if you do, you might look for a firm with higher commission but better MM rates.

-Tad

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Not so.

I have a Vanguard money market fund in my taxable account. When I want to buy any other fund, it is a simple matter to "exchange" shares in money market fund for shares in any other Vanguard fund. There is no fee to make the exchange and the trade is accomplished quickly.

Sounds like the original poster wants to be able to park some cash somewhere earning a decent return, yet still have it available to make quick purchases for his tax advantaged account. As others have noted, the discount brokers don't make this easy. But Vanguard's money market funds all offer competitive yields and the ability to exchange into other Vanguard funds with no transaction fee.

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