I am considering opening an account at Etrade, having no former experience with that broker. As I understand, the good thing is the availability of high-yield low-ER money market funds, such as VMFXX, VUSXX and other, which allow the uninvested cash to earn good interest. The drawback is that these funds cannot be used as a sweep/core account. So far, at Fidelity and Vanguard, I enjoyed the luxury of having my purchases deducted automatically from a high-yielding fund. I assume that at Etrade I would have to move money manually from the MM fund to the core/sweep account. How would that work for transactions that have long settlement time, such as bonds bought at auction?
As an example, let's assume I want to buy a 17-week T-bill next week. I would like to submit an order on Tuesday May 14, to be ready for the auction that takes place on the morning of May 15. The settlement/issue date is Tuesday May 21, a week after I submit the order. Obviously, I do not want to keep money on the sweep account that earns almost no interest, for the whole week. Let's assume all my uninvested cash is in VMFXX/VUSXX and sweep account has $0 balance.
How will that work? I can see several possibilities:
1. I can submit the order on Tuesday, despite having zero balance on the sweep account, and then move the money to it on Monday/Tuesday next week. What happens if I forget to move the money?
2. I can submit the order on Tuesday, and on the following Tuesday the appropriate amount will be autoliquidated from the MM fund to cover the order.
3. I cannot submit the order without the proper amount already on the sweep account. That money is then locked and has to stay on that account until the settlement date. If I buy $100K worth of bonds, I am facing the cost of about $100 in lost interest - a rather steep "commission".
4. The only way to submit the order with zero sweep balance is to have a margin account. In that case my cost would be zero if I remember to move the funds just before the settlement date.
Which one would work? Or maybe something else?
As an example, let's assume I want to buy a 17-week T-bill next week. I would like to submit an order on Tuesday May 14, to be ready for the auction that takes place on the morning of May 15. The settlement/issue date is Tuesday May 21, a week after I submit the order. Obviously, I do not want to keep money on the sweep account that earns almost no interest, for the whole week. Let's assume all my uninvested cash is in VMFXX/VUSXX and sweep account has $0 balance.
How will that work? I can see several possibilities:
1. I can submit the order on Tuesday, despite having zero balance on the sweep account, and then move the money to it on Monday/Tuesday next week. What happens if I forget to move the money?
2. I can submit the order on Tuesday, and on the following Tuesday the appropriate amount will be autoliquidated from the MM fund to cover the order.
3. I cannot submit the order without the proper amount already on the sweep account. That money is then locked and has to stay on that account until the settlement date. If I buy $100K worth of bonds, I am facing the cost of about $100 in lost interest - a rather steep "commission".
4. The only way to submit the order with zero sweep balance is to have a margin account. In that case my cost would be zero if I remember to move the funds just before the settlement date.
Which one would work? Or maybe something else?
Statistics: Posted by matt5728 — Thu May 09, 2024 4:25 pm — Replies 3 — Views 237