Ditch banks – Go with money market funds and treasuries

Original Article ↗ Hacker News Discussion ↗

Many commenters argue that traditional banks and credit unions are paying unacceptably low interest on cash, and instead advocate parking savings in money market funds and short-term U.S. Treasuries via brokerages like Vanguard, Fidelity, or Schwab. They weigh trade-offs between yield, liquidity, and safety, comparing FDIC insurance with SIPC coverage and the underlying credit risk of Treasuries, and note practical issues such as wire transfer reliability, tax treatment, and the need for quick access to large sums (e.g., for home purchases). Others caution that money market funds and bonds carry their own operational and interest-rate risks, and that the optimal choice depends on jurisdiction, tax situation, and how often one truly needs instant cash.

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.