Good clear questions. Let's see if I can provide equally clear answers ...
1. Here's a three part answer:
a) Core funds (see also answer #3 below for explanation of core accounts):
- Vanguard gives no choice, there's only Vanguard Fed MMF (VMFXX)
- Fidelity. Pick the highest yielding one. They're all government paper, so I don't see a great virtue in getting a pure-treasury one (unless state taxes come into play).
- Grandfathered core funds: FDRXX was converted to a government fund[video link]; not available as a core fund for new accounts. 6x the yield of Fidelity's other options (0.06% vs. 0.01%).
- Non-grandfathered core funds: Pick SPAAX (non-Treasury) over FZFXX (Treasury). Both yield 0.01%, but there's still a microscopic difference; last divs were $0.000008592 vs. $0.000008494.
b) Non-core funds:
- Vanguard: You've got a choice of two: Fed MMF (see above), and Treasury MMFVUSXX. As explained above, I'd go with non-Treasury (slightly higher yield, virtually no risk).
- Fidelity: Cash Reserves FDRXX; as above, 6x the yield of other options.
c) Link to outside banks:
Internet banks yield around 1% with no redemption fees, and my experience with EFT transfers to Fidelity (at least with some banks) is that I have access in 24-48 hours, which may or may not be sufficient. Note that bank savings (and MM) accounts come with a legal requirement (
Fed Regulation D) that they can hold your money for up to seven days. This rule has been around for decades.
2. Money in a brokerage account (from sale of securities or anything else) first goes to your core account (see #3), so in this sense, the possibility of the cash "automatically" going into a non-government fund or similar is nonexistent.
That aside, I think you're too concerned about what will happen with prime funds. Stock prices (crashing or otherwise) don't directly affect a company's ability to service its debt. If the company is sound, cash flow positive, it will be servicing its bonds regardless of what the company is worth.
What happened with Reserve Primary Fund (breaking a buck) was a confluence of several factors, plus mass panic (bank run):
- The fund was aggressively managed for yield and loaded up on Lehman Bros. paper, creating a single point of failure. Fidelity and especially Vanguard funds are conservatively managed.
- The Reserve (the fund company behind Reserve Primary) did not have assets to prop up its MMFs (since these were its whole business).
Many fund families have provided financial support to prevent their funds from breaking a buck. (
NYTimes: "[In 2008 alone] big banks and fund management companies have pledged more than $10 billion to rescue affiliated money funds that were caught holding mortgage market securities that were deteriorating rapidly in value.")
Fidelity and Vanguard certainly have the resources and motivation to do so if it comes to that.
- Institutions started pulling money out of Reserve Primary as soon as they got a whiff of trouble, and others followed. This exacerbated the situation. The Treasury stepped in an guaranteed
existing cash in MMFs (but not new cash) to stanch flows at other funds,; in 1929 FDR imposed a
four day bank holiday.
Liquidity constraints (redemption fees and redemption gating) are now in place to serve the same purpose of preserving order and liquidity.
Fidelity's video on fees and gates.
3. A core/settlement/transaction account is the place through which all your money flows. Think of it as your checking account at a brokerage. That core account may have a sweep feature, where spare cash is "swept" nightly into one or more other accounts. That could be simply for greater protection (e.g.
Fidelity's sweeps into banks yield just 0.01%, even less than some of their core MMFs), or it could be for yield. The receiving account could be one or more banks, or a different MMF.
For example, Schwab has a sweep option to move cash into MMFs. It is
eliminating this option as of June 1. Your cash (i.e. your core account) will now remain as a general liability of the brokerage (Schwab One Interest, SIPC coverage), or get swept into banks. Fidelity's equivalent to Schwab One Interest is called
Fidelity Cash FCASH.
Fidelity's CMA brokerage account (here's the
account agreement) will not sweep money into bank accounts if you reside outside the country. For these accounts, the cash remains a general liability of Fidelity. Similarly, some other types of accounts such as inherited IRAs cannot sweep into banks (but do provide core MMF options).
Lots of possibilities and combinations. The basic distinction remains - core is "checking", sweep is "automatic shadow account'.
I'd also mentioned a sweep-like feature that Fidelity provides. It will use your "position" (non-core) MMFs as sources of money for expenses (check writing, purchasing securities, etc.). Same idea as banks using savings accounts as a "checking plus" feature. So there's a sweep, but it's only one way. Here's
Fidelity's video on how this works.
4) No conspiracy theories allowed :-) The recent changes don't have any obvious effect on Treasury MMFs, so whatever they were yielding before is what they'll yield going forward. MMFs tend to charge management fees around 30-40 basis points, which is why these MMFs yield nothing. (The fund companies have been waiving fees to keep the net yields above zero.)
If anything, the fund companies have been fighting the new regulations (as they typically fight any regulation, not appreciating that sometimes eating your vegetables is good for you). There was strong lobbying against these changes.
5) Interesting question. I haven't looked into it.
