Ditch banks – Go with money market funds and treasuries

Original Article ↗ Hacker News Discussion ↗

Brokerages vs. Banks for Cash Management

  • Many commenters use brokerage cash management accounts (Fidelity, Vanguard, Schwab) as their primary “bank”: checkwriting, debit cards, ACH, wires, bill pay.
  • Others insist a traditional bank with physical branches is still needed for large, urgent withdrawals and for handling cash.
  • Some keep a minimal relationship with a brick‑and‑mortar bank purely for Zelle, quick drafts/cashier’s checks, or deposit of physical cash.

Liquidity and “Instant” Access

  • Debate over how “instant” money really is from brokerages: some report same‑day large wires for home purchases; others report random wire delays and holds.
  • Critics argue the extra banking partner behind a brokerage adds failure points; defenders say banks can freeze or delay funds too.
  • Use cases cited for very fast access: real‑estate deposits, last‑minute rental/elevator/bail payments, or opportunistic investing after a sudden market drop.
  • Several conclude that brokerage liquidity is sufficient for 99% of needs, but a subset wants the ability to walk into a bank and immediately withdraw large sums.

Risk, Insurance, and Safety

  • Strong disagreement over moving away from FDIC‑insured deposits.
  • Pro‑MMF/Treasury side: government‑only money market funds and T‑bills are treated as extremely safe; if Treasuries fail, FDIC is likely impaired too.
  • Skeptical side: FDIC explicitly backstops depositors and can cover bank fraud; MMFs rely on regulation, manager integrity, and SIPC, which doesn’t guarantee investment value.
  • Some highlight rare “breaking the buck” episodes and post‑crisis MMF regulations; others downplay this as a once‑in‑decades risk.

Yields, Taxes, and Product Comparisons

  • Core motivation: big banks pay near‑zero interest; MMFs and short‑term Treasuries yield ~5% in the examples given.
  • FDIC HYSAs/CDs can reach 4–5% too, but often slightly below MMFs/T‑bills; some are happy to “pay” that gap for FDIC.
  • Treasuries and certain MMFs offer state/local tax advantages in the US; this can tilt the after‑tax return further in their favor.
  • Discussion of specific tickers (e.g., VUSXX, VMFXX, FDLXX, SGOV, BOXX) and brokerage CD markets, with fees and tax treatment as key differentiators.

Use Cases and Strategies

  • Suggested pattern: keep a small fraction in bank accounts for on‑demand cash, and park the bulk in MMFs/T‑bills or short‑CD ladders.
  • Some prefer buying T‑bills directly instead of paying MMF fees; others value the convenience and automatic liquidity of MMFs.
  • Mention of using redraw on mortgages, bond/CD ladders, and teaching children via custodial or money market accounts.

Regional and Access Nuances

  • UK and EU commenters note higher baseline savings rates and different regulations; they see bond/MMF substitution as riskier but acknowledge local MMF ETFs.
  • New immigrants to the US may initially be limited to banks due to brokerage KYC/tax constraints.