What is qbyiq?

Opening a Fidelity account automatically establishes a core position which is needed for processing cash transactions and for holding uninvested cash. Fidelity has the right to limit the Cash Balances that are swept into a Program Deposit Account, or to move. Discover three of the most popular government money market funds well suited for investors seeking capital preservation and minimal risk. Meaning of QBYIQ by its letters. Every brokerage account has what is called a "sweep" feature or sweep account. What Is Cash Sweeping? Cash sweeping, or a sweep account, is a checking account that automatically transfers money to an investment account.

Fidelity money market funds are important investment vehicles that provide ready access to cash and relative safety.

The above attributes enable investors to temporarily park cash in such mutual funds before putting them to work in long-term investments.

Cash parked in Fidelity money market funds usually generates higher income than bank accounts. Unlike deposits in bank accounts, deposits in these mutual funds are not federally insured.

The U. S. Securities and Exchange Commission (SEC) regulates the investments owned by Fidelity money market funds to minimize investors’ risks

Generally speaking, the SEC permits Fidelity money market funds to invest in debt securities issued by government entities or corporations that mature in 397 days or less.

The SEC also requires the money market fund’s mix of debt securities to meet specific conditions. The fund must maintain an overall weighted average maturity of 60 days or less. Additionally, it must allocate stipulated percentages of assets to specific buckets such as Weekly Liquid Assets and Daily Liquid Assets depending on the type of the fund.

The SEC regulations collectively seek to ensure the fund’s investors have ready access to the money they invest. The regulations also seek to minimize the odds of investors losing principal or interest in case interest rates change or the borrower defaults.

Learn more: How you can reduce risk in your investments at Fidelity

Fidelity money market funds fall into one of three major categories based on the types of investments owned by the fund:

Fidelity government money market funds primarily invest in debt issued by the U. S. Treasury and U. S. Government sponsored-entities like Fannie Mae and Freddie Mac.

Fidelity prime money market funds, also known as general-purpose money market funds, invest in any eligible money market investment denominated in U. S. dollars including short-term debt issued by corporations and certificates of deposit.

Fidelity municipal money market funds primarily invest in debt issued by municipalities to earn income interest that is exempt from federal income tax.

The Fidelity prime money market funds and Fidelity municipal money market funds come in two types, Retail and Institutional, with these key differences.

Retail money market mutual funds are essentially limited individual investors (also called ‘natural persons’). These funds often to seek to maintain a stable $1.00 net asset value (NAV). If the fund’s ability to convert its holdings to cash falls below required minimums because of market conditions or other factors, the funds may impose a fee when shares are sold (also called liquidity fees) or may suspend share sales temporarily (also called redemption gates).

As implied in the name, Institutional money market mutual funds are held by institutional investors. They typically have minimum investment requirements in excess of $1,000,000. These funds transact at a floating NAV that is priced to 4 decimal places, e.g. $1.0000, and will experience fluctuations from time to time. Investors in these funds too can be subject to liquidity fees and redemption gates.

Fidelity government money market funds, in contrast, are available to both retail and institutional investors. Additionally, investors in these funds are not subject to liquidity fees, redemption gates, or a floating NAV.

Learn more: How to cut your expenses in managing your money at Fidelity

Although money market funds may appear simple investments, you need to look beyond just current yield and expense ratio to figure out the right Fidelity money market fund for your hard-earned dollars. It is useful to evaluate Fidelity money market funds on four dimensions to determine the best fit.

After-tax income: Income from different types of money market funds is treated differently for tax purposes. Dividends from government money market funds are totally or partially exempt from state income taxes while those from national municipal money market funds are exempt from federal income taxes.

Income from state-specific municipal money market funds is exempt from both federal and state income taxes. AMT tax-free money market funds seek to provide income that is sheltered from the alternative minimum tax.

You can maximize your after-tax income from a Fidelity money market fund by considering factors such as your marginal tax bracket and state of residence.

Learn more: How you can increase returns in your Fidelity account

Account type: Qualified accounts such as Individual Retirement Accounts provide tax-deferred growth. Taxable money market funds are often a better choice than tax-exempt money market funds for investing monies in qualified accounts.

Risk: While the probability of money market funds breaking the $1.00 NAV mark is remote, there have been a few instances. Fidelity U. S. Treasury money market fund is the safest of the lot while Fidelity U. S. Government Reserves and Fidelity Government Money Market Fund are a close second. Money market funds investing in commercial paper or debt issued by municipalities tend to carry a bit more risk.

Fund features: From applicability and usage perspectives, minimum amounts for opening an account, maintaining the account, and writing checks need to be considered.

Retail investors can choose from the following Fidelity prime money market funds. Among them Fidelity Prime Money Market Fund (SPRXX) is popular and has no minimum investment requirement.

*Net expense ratio and 7-day yield as of December 14, 2019

Additionally, the following Fidelity Prime Money Market funds are available to institutional investors: Fidelity Money Market Prime Money Market Portfolio – CL I (FIDXX), Fidelity Money Market Prime Reserves Portfolio – Class I (FDPXX), Fidelity Money Market Prime Money Market Portfolio – Institutional CL (FIPXX), and Fidelity Money Market Prime Reserves Portfolio – Institutional Class (FHPXX).

The following Fidelity government money market funds are available to retail as well as institutional investors. Among them Fidelity Government Money Market Fund (SPAXX) is popular and has no minimum investment requirement.

*Net expense ratio and 7-day yield as of December 14, 2019

The Fidelity Flex Government Money Market Fund (FLGXX) is closed to new investors.

The following Fidelity municipal money market funds are available to retail investors. Among them Fidelity Municipal Money Market Fund (FTEXX) is popular and has no minimum investment requirement.

*Net expense ratio and 7-day yield as of December 14, 2019

Fidelity money market funds are useful investment vehicles that often provide higher income than bank accounts. Since they provide ready access to cash, investors can use them to hold money that may be needed at a short notice. Investors with a low tolerance for volatility are likely to appreciate the stability they provide. Investors with long investment time horizons can also use Fidelity money market funds to diversify and stabilize their portfolios. Investors should consider after-tax income, account type, risk, and fund features to determine the best Fidelity money market fund for their particular situation.

*The bank deposit sweep products themselves are NOT FDIC-insured. Rather, through a bank deposit sweep product, the cash balance in an investment account custodied by Pershing LLC (“Pershing”) (“Account”) is swept into deposit accounts at various participating FDIC member banks, which are all Insured Depository Institutions (IDIs). The bank deposit sweep product balance held at the IDIs is eligible for FDIC insurance coverage up to the current maximum deposit insurance amount of $250,000 per eligible depositor at each IDI, for each eligible category of ownership or capacity pursuant to FDIC regulations, including any other balances held at that IDI directly or through other intermediaries, including other broker-dealers. Bank deposit sweep products are intended to direct the cash balance in Accounts to multiple FDIC member IDIs in a manner intended to secure pass-through FDIC insurance coverage on the bank deposit sweep product balance held by each IDI, which is an FDIC member. Subject to certain exceptions, the maximum amount of FDIC deposit insurance coverage available on the total balance in most bank deposit sweep products is currently $2.5 million for each eligible category of legal ownership pursuant to FDIC regulations. Tiered rate bank deposit sweep products are also available, which have rates that vary between investors. Rates are displayed on customer statements and available through your Introducing Broker Dealer (“IBD”) or Investment Adviser. Other bank deposit sweep products specific to certain pricing arrangements selected by an IBD or Investment Adviser are also supported. Rates on the bank deposit sweep products are displayed on customer statements and available through your IBD or Investment Adviser.

(No longer available to new clients)

Risks of FDIC Eligible Bank Deposit Sweep Products

In the event there is insufficient availability of Program Banks to fully allocate your balances, there is a potential that your balance in these bank deposit sweep products may not be fully insured up to product limit of $2,500,000 in FDIC insurance coverage. In the event the Program Banks cannot accept any additional deposits, the sweep feature on your Account may be updated to prevent any further sweep deposits from your Account. If this occurs, an available cash balance in your Account would no longer be automatically invested and would remain a free credit balance in your Account.

Important Features of Choice FDIC Eligible Bank Deposit Sweep Products Effective 02/08/21:

Secondary Sweep Option

Once your balance reaches the current Product Deposit Limit of $2,490,000, Pershing, as your agent, will automatically sweep any additional free credit balance over that amount (“Excess Balance”) from your Account into the secondary sweep option selected by your IBD or your Investment Professional. If your IBD or Investment Professional has not selected a secondary sweep option on your account, any Excess Balance will be swept into a default money market mutual fund (“Money Fund”). The default Money Funds used as the secondary sweep option for most bank deposit sweep products are currently the Dreyfus Government Cash Management Service Shares (Ticker symbol DGUXX) and the Dreyfus Government Cash Management Investor Shares money fund (Ticker symbol DGVXX). Please see of this Disclosure Statement titled “Money Fund Features” for additional information on the default secondary sweep option.

Negative Interest Rates

In response to certain extraordinary economic conditions, some foreign countries have implemented a negative interest rate policy to stabilize their economies. Under such a policy, a central bank charges banks a fee to hold reserves, and, as a result, the banks then charge depositors a fee to maintain their deposits. Historically, the U.S. has not adopted policies resulting in banks having to charge fees to maintain deposits held through bank deposit sweep products. In such an event, a fee would be charged for maintaining your deposits at Program Banks through a bank deposit sweep product. This fee would be in addition to fees received from Program Banks for their participation. Any fees related to negative interest rates would be applied to your balance on a monthly basis for the duration of the negative interest rate period. If applicable, this fee will appear on your periodic Account statement.

Balances in most bank deposit sweep products are eligible for FDIC insurance coverage and therefore not protected by the Securities Investor Protection Corporation (“SIPC”). Balances held by each bank participating in FDIC eligible bank deposit sweep products constitutes a direct obligation of the respective Program Bank and is not directly or indirectly an obligation of Pershing, your IBD or your investment professional. An investment in a Money Fund is not insured or guaranteed by the FDIC or any other government agency but is included with SIPC coverage. Although Money Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investment in a Money Fund.

For additional information on any Money Fund, including investment objectives, risks, charges, and expenses, please consult the Money Fund's prospectus. Contact your financial organization for the Money Fund prospectus and read it carefully before investing.

The Money Market Mutual Fund and FDIC Eligible Bank Deposit Sweep Product Rates expressed herein above as "Seven-Day Yield" and "Interest Rate" are provided to Pershing electronically on a daily basis by each of the above-identified participating Money Market Mutual Fund or FDIC Eligible Bank Sweep Product providers. Pershing does not verify or guarantee the accuracy of this electronically transmitted rate information. With respect to Money Funds, please refer to the applicable Money Fund prospectus. With respect to FDIC Eligible Bank Sweep Product rates, please refer to the applicable Terms and Conditions disclosure document. Please consult with your financial organization, which will provide you with the necessary information for you to make an investment decision concerning your available cash pending further commitment. Pershing is not responsible for any investment decision you make.

MONEY FUND AND BANK DEPOSIT SWEEP PRODUCT FEES AND REVENUE SHARING

Money Fund and FDIC eligible bank deposit sweep product processing fees and revenue sharing arrangements are a source of revenue for Pershing and, where applicable, a source of revenue for your IBD. For Money Funds supported on its sweep platform, available to all clients, Pershing receives remuneration paid out of the total operating expenses of the Money Fund, some of which include SEC Rule 12b-1 fees. If your IBD selects a sweep product that pays Pershing remuneration, in most cases some of the fees Pershing receives from the Money Fund and bank deposit sweep product providers will be shared with your IBD. In addition, Pershing receives fees for providing access to its platform from Money Fund and bank deposit sweep product providers. These fees are typically paid according to an asset-based formula. In certain circumstances, Pershing shares these fees. Pershing relies on third party service providers to support the bank deposit sweep products available to all clients and Pershing and the service providers receive fees to support those products. The combined fee of Pershing, the third-party service providers, and the IBD (if applicable) may not exceed 4%, or 400 basis points, on the average daily balances held in the sweep product at the IDIs. A portion of Pershing’s fees are applied against costs associated with providing services, including maintaining cash sweep systems, sub-accounting services, dividend and interest calculations and posting, accounting, reconciliation, client statement preparation and mailing, tax statement preparation and mailing, marketing and distribution-related support and other services.

Additional Revenue Sharing with Affiliates

There are several benefits of setting up a sweep account correctly.  First, most sweep accounts are FDIC insured, which provides your cash with a level of protection.

Second, you can earn interest on the money in the sweep.  If the money just sat in your brokerage, chances are you would earn nothing.  To earn some interest with the cash outside of a sweep account, you would have to invest in a money market fund.

Third, many brokerages are now allowing you to set their money market fund as your default for the sweep account (but you have to make that choice)!

For example, Fidelity allows the following sweep account options (they call it the core account):

It is important to note that sweep accounts are one of the most profitable products that investment firms offer.  You may wonder why?  Because most individuals don't set them up correctly, and as a result, the firm pays you nothing on you cash.

When setting up your sweep account, look at the options available to you.  Money market, savings accounts, etc.  Don't just settle for a yield of 0.01%.

If you don't make a choice, many brokerages just keep your cash sitting there - doing nothing for you! You have to make a choice to put your money to work for you!