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Shouldn’t Your Money Be Treated Well?

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By Jakub Krechowicz @ Shutterstock.com

If you choose to do business with a firm, shouldn’t you be treated well? Fidelity has chosen to automatically sweep customers’ cash into higher-yielding accounts, rather than stick it in low yielding bank accounts like most of the company’s competitors. Advantages like this are why I do business with Fidelity. Earlier this month Fidelity explained its decision to offer its customers accounts that earn up to 47 times those of its competitors’, writing:

  • Customers Opening Brokerage & Retirement Accounts Automatically Directed to Higher Yielding Cash Options, While Retaining Choice
  • This Investor Cash Automatically Earns 47x More than TD Ameritrade, 10x More than Charles Schwab and 27x more than E*TRADE Cash Sweeps1
  • One Year Later, Industry-Disrupting Fidelity ZERO Index Funds Grow to Nearly $6 Billion in Assets

Fidelity Investments®, the largest retirement and brokerage firm with nearly $8 trillion in total client assets, today announced it has challenged conventional industry practices by automatically directing investors’ cash into higher yielding options available for brokerage and retirement accounts as well as providing product choice – all without any minimum requirements.

Fidelity’s approach is contrary to typical industry practices of defaulting customers’ cash into a low-yielding product – often at an affiliated bank – with no other option in what the industry calls a “cash sweep.” Recent customer research shows that many investors don’t focus on the rate paid on their cash when they open an account and, too often, they don’t take action later. Fidelity has made it easy for customers by automatically giving them the higher yielding option at account opening, while also providing other investment options for those customers who prefer it.

With Fidelity’s commitment to providing investors with unparalleled value and choice, cash investments at Fidelity could earn 47x more than TD Ameritrade, 10x more than Charles Schwab, and 27x more than E*TRADE cash sweeps (see table below).

Yield as of 8/5/2019
(Yield may vary due to market conditions)

FIDELITY

SCHWAB

E*TRADE

TD AMERITRADE

Government Money Market Fund
7-day yield

Default Sweep APY

1.91%

0.18%

0.07%

0.04%

Figures show yield as of 8/5/19 (Yield may vary due to market conditions) see Fidelity.com for more recent yields; The Fidelity fund yield is the average amount earned by the fund after expenses over the past 7 days, annualized as of the website published date indicated. The default sweep APYs are sourced from each firm’s website as of date indicated assuming a $10,000 investment with a comparable brokerage account. APY is the amount of total interest earned on a bank product in one year. See additional important comparative details below.

“Some firms have removed the option of a higher yielding money market fund as an option for their cash sweep, thereby forcing investors to take additional steps to get a better rate for their cash,” said Kathleen Murphy, president of Fidelity Investments’ personal investing business. “By offering choice at account opening and directing cash into the higher yielding option when investors don’t make a choice, we are once again ensuring clients receive more value with Fidelity. It is unfortunate that millions of investors lose out on having money in these accounts earn more for them based on current industry practices.”

The chart below demonstrates hypothetically how an investor’s cash invested in a Fidelity money market fund compares with prevailing sweep accounts annually, based on current published yields.

Fidelity
Investments
1.91%

TD Ameritrade
0.04% – 0.07%*

Charles Schwab
0.18%

Fidelity 
Government 
Money Market 
Fund

7-Day Yield

Default Sweep APY

Earned
Annually

Earned
Annually

Annualized Lost
Opportunity

Earned
Annually

Annualized Lost
Opportunity

$10,000

$191

$4

$187

$18

$173

$50,000

$955

$25

$930

$90

$865

$100,000

$1,910

$70

$1,840

$180

$1,730

Current yield as of 8/5/19. (Yields may vary due to market conditions.) Examples are hypothetical, for illustrative purposes only, and are a simple calculation of the annualized yield assuming each level of investment. *For TD Ameritrade: .04% for $10,000, .05% for $50,000 and .07% for $100,000

If an investor thinks about this for the long-term, the lost opportunity would be in the tens of thousands of dollars.

“We continually focus on providing greater value to our customers. And today’s announcement builds on a long record of disrupting industry practices to benefit investors, including the introduction of Fidelity ZERO Funds, the price cuts on our index funds and our removal of investment and account minimums on retail brokerage accounts,” said Murphy. “Fidelity is committed to enhancing the value we can provide our customers and not simply following industry practices that just don’t benefit investors.”

In 2018, Fidelity announced several groundbreaking enhancements to deliver significant value to investors. Since then, customers have saved an estimated $31 million from Fidelity’s index fund repricing and the removal of domestic money movement fees.i In addition, investors are taking advantage of Fidelity’s ZERO Index Funds with assets growing to $5.7 billionii while the overall index funds assets have grown to $519 billion (up 25% since 7/31/18). Fidelity continues to build on that industry leading offering with the recent launch of five equity index funds priced lower than comparable Vanguard and some of the lowest cost target date index funds.2

1 As of August 5, 2019.
2 Net expense ratios as of 8/6/19. Source: Morningstar

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com