You think this is bad, I found this TradeStation only paid about 1% even when rates were 5.50% http://elitetrader.com/vb/showthread.php?s=&threadid=69369&highlight=TradeStation+Interest
I was using the term "almost" loosely. To be more precise, Citi's rate is 3.92% (4.0% yld) ... = 1.66 X IB's interest. This is what I'm currently earning at Citi. Yes, it is a money market, and as far as I know the interest I've been earning is 'real' money. Citi has fallen from 4.50 to 4.0 (-11%) in about the same timeframe as IB's rate went from 4.83 to 2.35 (-51%). Rates will undoubtedly fall further at both places. Would you be comfortable with me saying that IB's interest has fallen more than 4 times the amount of Citi's?
It isn't fair to compare IB's interest rate, paid on account funds insured by SIPC and Lloyds' of London, against Citi's uninsured money market interest rate. By the way, when you turn off the lights, do your Citi money market disclosure documents glow in the dark?
I'm certainly no expert, so ... what am I missing here? http://www.fdic.gov/deposit/deposits/insured/yid.pdf
Perhaps some explanation is in order. At the most recent auction of Treasury Bills, the rate for a 90 day T-Bill was 2.2%. Now, let me tell you why that's important. That is the safest money market instrument in existence, the 90 day T-Bill. Everything else in comparison is probably higher yield, and definitely carries some additional risk. By the way, the 180 day T-Bill is somewhat less in yield, 2.13% at the latest auction (February 28). In comparison, 90 day commercial paper (non-financial) is at 2.57 according to the Federal Reserve. 90 day commercial paper (financial) is at 2.98. Obviously, commercial paper is riskier than treasury bills, and therefore pays more in interest. That how it goes in money market instruments. They all pay yield based on type of instrument, risk, and maturity. Everything pays higher than T-Bills because T-Bills are the safest. So, all things being equal, a money market rate should be something close to T-Bills, unless the money market fund has done something that is risky, or unless perhaps they locked up some type of money market instrument with a longer yield, and it still has not matured. So when you start gloating over a 4% rate, I wonder to myself what type of money market fund you are in. What exactly is held by your money market fund? Because there are truly no free lunches in money market instruments. One of the higher rates available right now in 6 month CD's is offered by Countrywide Bank. They are paying 4.3% for a $10K minimum on the internet. Good luck with that one. LOL! So, like I say, I don't know what you have. I know what money market instruments pay, and I know there is no free lunch. If you are dealing with Citibank perhaps they have offered you some type of special deal, or a special savings account. These deals are around. However, I'm not aware of them in conjunction with a brokerage account. You'd have to tell us what type of brokerage deal you get with Citibank. Most of us (at least I assume most of us) are traders. And therefore, speaking for myself, I'm focused on trading profits. In the old days I used to put treasury bills up as margin. I liked that method. And as I say, if I were doing that today I would get 2.2%, exempt from state taxes. Instead, with IB, I get the benchmarket rate less .25%, which today is around 2.81% as I understand it. Frankly, I don't follow all that closely. My primary emphasis is trading profits. But here's what I don't EVER do. I don't chase yield. In other words, I wouldn't dream of giving Countrywide any money at 4%. That extra % makes no difference at all to me. I don't take a risk for a small additional bit of interest. I trade futures all day long. When I take risk I want the reward to be worth it. None of us are going to make much money whether we get 2,3, or 4% on our money. What's important in my mind is the safety of your money when you're getting those type of low yields. If I want to take a risk, I want to take for giant returns such as are possible with futures or stocks. At least that's how I see it. OldTrader
Oops, I guess you were talking about an FDIC-insured money market account, instead of an uninsured money market mutual fund.
When t bills are 2.5%, everyone else is earning 2.5% on their balances and you're getting 4% on your balances .... ... you might think everyone else is a fool, but you would be sadly mistaken. Just ask all those folks who were long mortgage backed commercial paper for that *extra* 50bps. ... or all those folks who were long auction rate resets for that *extra* 50 bps. Whether its credit risk like the former or maturity risk like the latter, you are paying for that extra 50 bps and then some as a tax on stupidity and greed.
What risk is there for "chasing higher yield" when the accounts the original poster is talking about are FDIC insured? You might say that if a bank goes under, your capital might be tied up for a long time, and perhaps that is true. But I had a small amount of money in NetBank when it went under and I was able to access it within a few days after ING bought its assets. Maybe it doesn't always happen so quickly. However, if I have extra cash lying around, I am always chasing yield because over time it makes a difference.