Monday, March 06, 2006

The money market squeeze

Discount firms like Schwab and TD Ameritrade may have low transaction costs but they still have to make money...

Schwab is supplanting its various money market funds that pay about 3.8% as its default vehicle for sweep balances with a bank checking account that pays 2.2% interest. A primary option is the Schwab Money Market Fund with $42.3 billion in assets.

TD AMERITRADE jacked up its management fees on its default money market funds as of Feb. 24. The Omaha, Neb.-based company allows investors to choose a default option.
The bottom line here is that Schwab and TD Ameritrade have begun to charge clients out the wazoo for money market sweep accounts.

TD Ameritrade charges a management fee of .91% on its Money Market Portfolio--are you kidding, an expense ratio of nearly a point for a money market fund? And Schwab, offering 1.6 points lower yield for a bank sweep account vs. money market? Will clients really put up with this? They will if they are not aware.

1 comment:

Alexandrina said...

That was a really strange situation with the ratio.