Cash Management Solutions
As interest rates rise we are seeing an opportunity to increase returns on cash via sweep features and traded money market funds. At the beginning of 2018, the majority of cash sweeps and money market funds were returning yields of 0.01% so the type of money market selected was not as important. With the Fed Funds rate at 2.5%, many of the custodians have increased the yield on their cash options. We are finding that not all options are the same and this is a good time to review the sweep funds that have been selected in your client accounts. If your clients have large cash positions, this is also a good time to review and possibly use traded money market funds that return higher yields.
What is the difference between a sweep fund and a traded money market fund? A sweep fund is a feature offered by the custodians to provide additional interest on cash in an account. There is no trading action required on money market sweeps. Once selected, the custodians automatically sweep the cash into the money market and sell as needed out of the money market at the end of each business day. Traded money markets are mutual funds that invest in cash vehicles and since they are mutual funds, they are not as liquid as cash or cash sweeps. Traded money market funds usually offer a higher yield than sweep money markets but they do have additional risk as NAV can fluctuate from $1.00 per share. Traded money market funds are grouped into three types – Treasury, Government, and Prime Funds; Yields and risk range from lower to higher, respectively.
We have researched the three main custodians used at Dynamic Wealth Advisors (Schwab, TD and Fidelity) and have compiled this information for each of the custodians. The following are some of the most widely used money market funds at each custodian. All of these are great options as they do not have minimum investment amounts and are not subject to transaction fees or holding periods.
Additional information can be found at https://si2.schwabinstitutional.com/SI2/Trading/CashInvestmentYields.aspx#taxSweep
Additional information can be found in TD VEO in the Resource Center under Investment Solutions –> Cash Management and Lending
Fidelity has a Government money market fund that can be used as a sweep fund. We highly recommend using this option as trades are not needed to buy and sell. The sweep fund will automatically be bought or sold as cash balances change.
Raymond James has two sweep options Raymond James Bank Deposit Program (RJBDP) and Client Interest Program ®? (CIP). Both pay the same rates
For the traded money markets, they have core options that do not have associated minimums. This is the list of traded mutual funds