Ameritrade cash sweep option (TAP)
I had a friendly chat with an Ameritrade APEX CSR last month. I actually called up because one of my out-going ACH transfers has been rejected by their system (again). I noticed that Ameritrade sometimes seemed to be randomly rejecting outgoing ACH transfer and frankly, this is getting very annoying especially when the interest paid for cash balances in the brokerage account is pitiful.
After straightening out the ACH issue, I casually asked if Ameritrade offers a better cash sweep option other than the crappy sub-0.5% default money market sweeps (for balances up to $25k).
The rep told me that there is the TAP (Total Asset Plan) which an investor can sign up. Under this plan, the money market sweep are the money market funds provided by The Reserve Funds. The current yield for the taxable money market fund (Primary Class R) is around 4.47%. Not as high as Vanguard’s Prime market fund (currently 5.25%) but definitely better than 0.1%.
On the application form for TAP, it is stated that an investor needs to have an initial cash balance of $100k to sign up. However the rep told me that this is not enforced.
I decided to sign up for TAP since there is nothing for me to lose. I faxed in the application two weeks ago but til this date, the plan is still not activated. I emailed Ameritrade about this and they told me that the application had been received but it takes “3 to 5 business days” to process the application. As of today, this is already beyond their “normal” processing time. I figure since there is nothing for Ameritrade to gain, they are probably just taking their time to process the application. Oh well…
On a separate note, the money market funds from The Reserve Funds have very high expense ratios. For example, the taxable money market fund mentioned above has an expense ratio of 1.0% (versus Vanguard’s 0.29%). I guess part of the expense is used by The Reserve Funds to pay the brokerages (Ameritrade in this case) for their business. This probably also explains why Ameritrade would not offer a sweep money market fund provided by Vanguard for instance, since Vanguard would not want to increase expenses by paying a broker to list their funds.
PS. On the form, it is also stated that a minimum of $2000 is required to earn interest. I do not know if this will be enforced or not.
Stumble it!
July 14th, 2007 at 10:54 pm
When I login on 7/12, TAP is already active. Since I have not been checking regularly over the past few days, I am not sure when it became active.
August 3rd, 2007 at 10:11 am
Since you use TD Ameritrade, I thought that I would mention that The Reserve also has an option called an “enhanced cash fund”. The symbol is RYPQX, but it is not offered as a cash sweep. You need to buy and sell as if it were a regular NTF mutual fund. I also noticed that you can buy and sell the Vanguard Prime Money Market Fund (VMMXX) on TD Ameritrade, but is seems to go in as a regular no-load fund (i.e. with a $49.99 commission). So, that pretty much eliminates any benefit from the higher yield. Actually, RYPQX is paying around 5.4% now, so you might consider it.
Also, since you seem to know a lot about money market mutual funds, I will pose the same question that I did on my own blog: [In regard to the Vanguard Prime money market fund,] do you need to report each mutual fund sale (each time you take money out of the fund) as a broker transaction on Schedule D of your tax return? Presumably, the fund tries to maintain a $1/share valuation, and each transaction would represent $0 in capital gains.
August 3rd, 2007 at 12:12 pm
pfstock, thanks for your comments. Grant’s Corner Office Blog also wrote about RYPQX.
With regards to the Schedule D, it depends on how the broker reports. If the broker reports it, then it should be added into Schedule D.
Previously, I used to have a position-traded MMF with the former Brownco brokerage and they reported all transactions in the MMF. So what I did was to make sure that the total traded value in Schedule D matches with what the IRS will receive. I remember reading an instance (probably on FWF) where a person received an inquiry from the IRS because his Schedule D does not match – something you would want to avoid.