Utilizing Money Market Funds & Treasury Bills For Brokerage Bonuses

We’ve written about using money market funds instead of traditional savings accounts. These accounts often have even better rates than top savings account rates, and sometimes can come with a bit of tax savings as well. See the following posts:

Readers have pointed out that these accounts can also be utilized to earn brokerage bonuses. If you have large deposits sitting in a high yield savings account, consider opening a brokerage account and buying these types of money market funds or EFTs which are nearly as secure as a traditional bank account.

A similar method can be employed by purchasing brokered CDs or U.S. Treasury Bills from within a given brokerage. These are as secure as an FDIC insured bank account, and most brokerages offer these purchase options.

As an example, Ally Bank recently removed the fees for buying mutual funds. They also carry many popular Vanguard and Fidelity funds such as VMFXX which is the Vanguard default money market fund (ht MMB). Similarly, reader Matt lets us know that E*Trade and JPM Self-Directed allow the purchase of VUSXX (that’s the treasury fund we discussed in this post).

There are also ETF alternatives which operate similar to money market funds and can be utilized in the same way. Any investing platform should allow ETF purchases. Feel free to discuss possibilities in the comments below. I believe BIL, SGOV, or ICSH would be good options.
    Chuck
  • On February 20, 2023, 11:00
Tags: bank bonus

View Comments (81)

  • Can anyone please explain this?

    I just read this in the news: "The yield on the 2-year Treasury note fell sharply on Friday as the shutdown of Silicon Valley Bank sparked a flight to safer assets such as government bonds.

    The yield shed at least 46 basis points over a two-day period, a sudden decline not seen since September 2008, when the markets were in the throes of the global financial crisis. Perhaps by no coincidence, the flight to bond safety this week was caused by the biggest bank failure since the financial crisis."

    I thought that Treasuries are U.S government bonds? I've also been made to believe from reading it over and over on social media that Treasuries are the "safest" investment instrument. Is that not the case and which government bonds are safer rhan Treasuries?

    • Don’t worry, as long as you hold your treasuries to maturity, you won’t lose any of your principal. US Treasuries always pays out, even if the US Govt defaults. The issue is your dollar will be worth much less when you get it back due to inflation and devaluation.

    • Your last paragraph is correct, the point of the article is that when everyone wants to buy treasuries, the price goes up and therefore the interest returned (yield) goes down.

      • Bonds value and interest rates work in opposite directions. As a bond value increases, the rate offering goes down as demand to buy the bond increases. Other bond issuers have no incentive to offer a higher rate to buyers. When a bond value decreases, the rate offering goes up as demand to buy the bond decreases. Other bond issuers have to offer higher rates to get buyers.
        Direct obligations of the US Government (Treasury and certain government agencies) are considered to be the safest investment. If it defaults, it will take down the country's economy. A safer investment would be bonds issued by a very financially sound country with little debt, but as for the USA, it would be Treasury securities and savings bonds.

        • @guest_1575440 I get confused, could you please give some examples?

          "A safer investment would be bonds issued by a very financially sound country with little debt"

          • Cheryl,

            The issue about the "flight to safety" occurs when funds placed in more riskier vehicles become unavailable. An example would be with junk corporate bonds offering a high interest rate. Some investors would invest in them in the hopes of making large amounts of money. If the issuing companies' default, other investors would avoid them and look for more safer investments creating a higher demand for the safer investments (and pushing up their price). Bond interest rates go inversely with the price of the bond. So, a higher price pushes the interest rate lower.

            During the subprime implosion in 2008-2009, some people in the financial industry were saying that the banking system was "going to tank" and to move your money to precious metals because they were going to go up in value. Some others said to move your money to a foreign bank and convert it to another currency since the US dollar was "going to tank". Taking either action would seem to be logical if the banking system was "going to tank". If it does not tank, then you moved your money needlessly to another form that may or may not work for you in the future. It will be difficult to buy a hamburger at McDonald's with precious metals or foreign currency.

            In terms of money in the US, Government bonds and securities are considered the safest investments compared to other investments available in this country. Investing in foreign currency is riskier and more uncertain unless you plan to permanently move to a foreign country. I was just making a comparison between country economies where some are on a better financial footing than our country. For example, Germany in the 1930s saw their currency worth less than the paper it was printed on. People often try to switch to another currency form or precious metals in order to prevent the complete loss of their purchasing power. Some even suggest now to move to digital currency instead of the dollar. Anyway, what I have discussed is often of no concern to most people here.

            There are different classes of US treasury and government agency securities (such as Fannie, Mae, Sallie, Mae, Freddie Mac, Ginnie Mae, FHA, TVA, Farm Credit Bank, etc.). In terms of default position, the direct obligations of the US Treasury securities (i.e., Treasury Bills, Notes, Bonds, savings bonds) would be in the last position to default. So, they are "safest" debt obligations of this country.

          • The bond-market’s actions on Monday reflect “a flight to quality since there are very few quality assets left like Treasurys. So whenever there’s a crisis, people will flood into these very, very safe assets and naturally push down rates.”

            https://www.marketwatch.com/story/treasury-yields-see-biggest-three-day-skid-since-wake-of-black-monday-in-1987-72ad493c?mod=mw_latestnews

            Treasury securities rates may trend downward now with all of the banking problems. Investors tend to move money out of riskier investment vehicles. They look for insurance to prevent any further possible loss to their money. When you got a lot of customers looking to invest, you can push the interest rates downward since there is no incentive needed to attract new customers. As the saying goes, it is better to get a little bit and still have your principal rather than try to get a whole lot and lose it all.

  • Is there a minimum holding period for Money Market Funds such as Vanguard and Fidelity MMF? In other words, can they be liquidated after a short holding period (1 week or 1 month, etc.,) and they pay the interest/gains upon liquidation? Thanks!

    • Money market mutual funds declare their dividends daily, so you will be paid the accrued dividend for the time period that you were invested in the fund. There is no short-term holding charge that are often applied to other types of mutual funds.

  • Which brokerage account bonuses are churnable?

    I have already done the merrill edge and chase private client.

    • I was just reading about chase private client offer. Does it work just like regular brokerage account?

  • As an alternative, if you're concerned about rates dropping during the 6-12 month holding periods generally required for brokerage bonuses, you could consider CDs and treasuries. Every brokerage account I have offers them. 6-month treasuries are over 5% and 1-year non-callable CDs are up to 4.9% (based on a quick glance at Schwab's listings). I wouldn't expect rates to drop in the next 12 months, but these options would offer guaranteed returns for those concerned about volatility and are considered more secure.

    Obviously CDs and treasuries lock up the money, but there's not much point to going in for the bonus in the first place if you aren't confident you can keep the money in place.

    • Treasuries don't lock up the money as you can sell them. You can lose money though if you don't wait till maturity if rates go up (since your lower yielding treasury is now underperforming, which requires repricing). The opposite happens if rates go down: your treasury increase in value.

  • Word of caution that money market funds aren't FDIC insured, and that in theoretical scenario can lose their $1.00 peg value. Overall and relative is low yes, but the possibility of another financial crises making everyone withdraw from investment & banks isn't 0, despite how hard soyboy JPow tries to tightrope walk and keep the rotting tree lol.

    • FDIC is the federal government's insurance, while the Treasury *is* the federal government. Saying that treasuries are worse than banks because of the insurance is extremely dumb.

      If you are worried about credit risk, just don't invest in corporate MMFs.

        • Almost all banks keep money into treasuries. If treasuries fail, banks fail, and so will FDIC, SPIC, and what other government letter agency will fail. Placing money into an MMF is just one step removed from placing money directly with the federal government. Keeping money in a bank account is just two steps removed. Either way, the collapse of treasuries will result in the collapse of the whole economic system

      • No, SIPC protects you if the broker or holder of your securities goes bust, not the securities themselves. Sort of like FDIC protects you if your bank goes under, not from your cash losing value due to inflation.

    • If they're not FDIC insured, I'm not going to do this. I've been burned too many times when there are no laws protecting customers. For example Voyager, FTX and Gemini.

      • Lol during 2008 only a single MMF broke peg down to $.99. It would be like saying you're never going outside in the US because there's war in Ukraine and it's too dangerous

      • I think you are fine. MMF invest money into T-Bills and Bonds. They are US Debt. If they lose peg your USD stash under your bed will also lose value. This is not crypto where the neo-bank fails. We are talking about the federal government collapsing and by then your USD will become the next Argentinian peso anyway. The risk is miniscule

  • I'm using USFR in one of my brokerage accounts for "cash". It invests in floating rate treasuries, what are weird things, but they have a duration risk similar to ultrashort bonds in ICSH or BIL.

    • I checked. They have a much longer duration than bil. and they dont invest in floating at all. strange , huh

      • As Tyler said: You probably confuse duration and maturity.

        As of yesterday, USFR's duration is 0.02 (years), while BIL's is 0.10. So currently BIL actually has FIVE TIMES longer duration than USFR. A theoretical 1% rate bump will affect (drop) BIL's value by 0.1%, while USFR only 0.02%.

      • I think you’re confusing duration and maturity. Duration is a measure of a bond’s (or fund’s) sensitivity to interest rate movements. USFR’s is 0.02. BIL’s is 0.11. Therefore, USFR actually has a shorter duration.

  • I'd love to read specific examples of bonuses available where it would make sense to move or buy money market funds for a specific bonus :)

  • For those with Merrill Edge,

    1. log on to your account
    2. scroll all the way down
    3. You'll see lots of links, look for "Deposit Account & Money Fund Rates (PDF)"
    4. Go through it and look at all the options you have to park your cash

    Most of them are T+1 that means you have to place and online order to buy or sell, and your funds will be available the next day (as long as you place an order before 3pm EST).

    They have one of the best selection, e.g. TMCXX is paying 4.6%. which is better then any treasury, etf, cd, mutual fund, etc. when considering how liquid it is, just 1 day and you have your money back.

    If you can't figure out how much money you need to have liquid for just 1 day while the rest of your money sits and collects 4.6%, then I'm sorry but you shouldn't have a brokerage account and be handling your own funds to begin with.

    • Very helpful info! One (relatively small) issue I had with BoA is that they even charge a fee for each ACH push out? is that just my account? seems uncommon for a large bank to do that.

    • Lol obviously you’re not an active trader. Yet telling other people they shouldn’t have a brokerage account. Ok.

      • I was very clear which types of people shouldn't have a brokerage account Karen, I mean Rick.

        Great reading comprehension btw, title and content of this post definitely focused on active traders rather than people who deposit funds strictly to take advantage of brokerage bonuses and alternative methods to maximize interest earned. Ya, I'm pretty sure this too will go over your head.

        Any how, thanks for the good head shake/laugh!

    • On the PDF (described above) there are two competitive in house options at Merrill:

      Insured Savings Account (ISA), current APY at 2.77%, $1k minimum, and
      Preferred Deposit current APY at 4.24%, $100k minimum.

      There is also a listing of Taxable MMFs from Blackrock, Federated, and Fidelity, many of which offer very good yields, including TMCXX at 4.60%.

      Regarding liquidity, people use their brokerage accounts in different ways, and some are more active than others. The market sometimes presents trading opportunities that are short term in nature, and immediate liquidity is useful in this regard.

      • Would a margin account not help alleviate that? You would have the money from the MMF account the next day, while it will take an additional day for your trade to settle, thus not charging you any margin interest.

        • It works even in a cash account. I'm pretty sure I've done this. MMF is T+1 but most everything else is T+2. The broker's systems should know that your funds can settle and payment will be made. There are violations to avoid, good fath, freeriding, liquidation. Most brokerages will have a primer, here's one from Fidelity:
          https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations

          Government and some other securities are T+1. SEC has changed settlement timeframes, last time in 2017 when T+3 went to T+2. Next one will be in 2024 when T+2 will go to T+1.

          • @guest_1561410 out of curiosity, I wonder do MMF funds (Fidelity, Vanguard, etc.) settle after-hours? Like could I sell my Fidelity or Vanguard MMF after-hours and have the cash immediately?

          • Order cutoff times vary by fund.. not clear when the money is actually settled and available but "same business day" settlement. I looked at the ones Merrill offers which include some Blackrock and Fidelity, and those with same day liquidity have cutoffs pretty early in the day like 11:45 am, 1:45pm. (Some funds have early cutoff with next business day settlement.) The latest I saw was not a fund, but Preferred Deposit which has same day and 5pm cutoff.

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