The money market squeeze

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

From InvestmentNews.com:

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.