Complete avoidance of FIDC insurance after one mention. So, it's predicated on being able to afford to lose all of the savings.
Whats that about a fool and their money easily parted? Why yes, chasing the highest return IS a good way to come unstuck. What do you think those extra points of interest were held back for in the first place?
> What do you think those extra points of interest were held back for in the first place?
Definitely not FDIC insurance.
A "Capital One 360 Performance Savings" account gets 4.25% APY with full FDIC coverage.
A "Capital One 360 Savings" account gets like 0.2% APY with full FDIC coverage.
Clearly they don't actually need to eat 4% APY in order to get FDIC, or else the first type of saving account would be a bad one to offer.
Anyway, the FDIC is a promise from the government that they'll cover your cash, and so is a treasury. Treasuries and FDIC insurance both have roughly the same risk, which is that of the US government collapsing entirely.
if a money market fund, especially one backed by the federal reserve like a us treasury, collapses, you have MUCH bigger problems my friend. It basically falls into the category of “doesn’t keep me up at night”.
I recommend you do some reading to learn more about it.
To be overly pedantic, there is an added risk of fraud from the fund manager. If a savings bank embezzles your money, the FDIC will make you whole, and do so rather quickly. If your MM manager does so, you have to get in line and hold out your hat.
The risk of e.g. Vanguard doing this is also probably negligible.
Many brokerages also offer access to a public market of bank CD offerings. So, you can go that route and get FDIC insurance if you want while avoiding the pitfalls of dealing directly with a single bank outlined in the article.
I prefer Treasuries in my taxable accounts as there is a break on State taxes for the interest generated. I hold CDs in my non-taxable retirement accounts as they tend to pay a few tenths of a percent higher.
Money market funds with government paper (US Treasuries) are backed by the Federal Reserve, effectively limitless. “Full faith and credit.”
FDIC is to make the unsophisticated comfy with parking their savings for pitiful rates at commercial banks making the spread. Their margin is your opportunity.
There is the unfortunately plausible scenario of the US Congress suffering a fit of insanity and blocking the ability of the Treasury to make a timely payment.
It's hard to say what the outcome of such a move would be, but one possibility is Treasuries taking a large haircut, but without triggering the sort of collapse that would swallow FDIC along with everything else.
Whats that about a fool and their money easily parted? Why yes, chasing the highest return IS a good way to come unstuck. What do you think those extra points of interest were held back for in the first place?