Most people worry about losing money, hesitant to lose 0.01% but accepting a yield of 0.01%. Though they may be indifferent to a spread of several basis points, so long as neither choice loses money, nominally.
Of course all the choices lose money on a real return basis. So IMHO the question ought to be what gives the best albeit negative real return, post tax, after including risk and convenience considerations? Different people are concerned with different risks and weight convenience factors differently, so the selections made by different people can be radically different yet all reasonable.
IMHO you're never going to see a negative nominal rate in a MMF, because funds waive expenses to ensure yields of at least 0.01%. See, e.g.
Fidelity Treasury Only MMF (FDLXX), which would be yielding -0.06% but for a voluntary fee waiver that "may be discontinued at any time."
Unless you have over $2
50K in all FDIC-insured bank accounts combined, insurance limits are a non-issue. If you do, then so long as you don't have more than $2
50K in a single bank, you're still okay. If you've got more than that in a single bank, kudos, and I can go into the different types of accounts (because each type of account has a separate limit of at least $2
50K).
Scottrade is pretty clear about how the money is held. Section 4 of its
disclosure says that the first $247,
500 will go into one Program Bank (see
here for list of banks), the next $247,
500 will go into a second Program Bank, and any remainder (without limit) will go into Scottrade Bank. Choice of banks they use (from the list) is at their discretion, though they'll tell you where your money is.
The money is held in a combination of a NOW account and a money market (bank) deposit
account (not MMF) at each bank. While it is true that MMDAs are restricted to six withdrawals per month, Scottrade will manage the accounts so that no money is ever trapped in the MMDA. The only other restriction comes from Banking
Reg D that says that the bank has the right to require seven days notice before honoring a withdrawal.
I don't know of any instance where this has been invoked, but there's certainly enough confusion about the rule (including the fact that most people don't even know it exists). See, e.g. Citibank 2010:
http://www.businessinsider.com/citigroup-warns-customers-it-may-refuse-to-allow-withdrawals-2010-2Being aware seems to be the bottom line. It is unlikely that any of these rules will be triggered, and MMFs are now publishing their maturity distributions (e.g. FZDXX
has 42% of its assets maturing in a week or less, well above the 30% threshold that might trigger redemption restrictions).
