Whoa. You traveled forward in time to get my quote!
Don’t credit card companies frown on passing the fee on to customers and/or offering a “cash” discount?
Yeah. That was trippy!
However by the OP’s criteria interest rates are a non-issue as cash does not earn interest at all - or technically has a negative interest rate in real term.
Nice try.
Not sure if you were entirely clear on this point, but a bank account isn’t limited to holding 250K. That’s just the amount that the FDIC insures against the possibility of bank failures. Even when we were in the shitshow of 2009, only 140 banks failed that year. Only 4 failed in 2020, and there were zero failures in 2021.
You can’t have that much liquidity, instantly accessible, and 100% safe. One of those constraints has to relax.
- relax the safety constraint: pick a nice reputable bank, make a deposit well in excess of the FDIC limit
- relax the “instant accessible” constraint: put it in a brokerage account, invest a boring bond fund. I’d think 3-4 days is more than reasonable enough to clear a $1MM transaction.
- relax the liquidity constraint: buy a $100MM cube of platinum, buy an insurance policy on it, be prepared to accommodate the platoon of armed guards that the insurer will want to guard it with.
Or if you want to go full gonzo, put that $100MM in Bitcoin. You’re 100% liquid and available on demand for any vendor who accepts bitcoin. But the process of turning it into massive amounts of dollars is going to be sloooooow, and your deposits aren’t protected by anything but your ability to remember a password and safeguard a keyfile.
The government just really doesn’t want people commanding that kind of liquid cash. it’s hard to protect, and easy to get up to nefarious things, and isn’t doing any economic work. Not that I’m happy about the government being a nanny like that, but that’s what you’re up against.
You disagree?
I said interest rate risk. That means the price of a bond will drop if rates rise. You don’t put money that you need available for immediate liquidity in long term bonds.
Yes, you can. You buy Treasury Bills. Again, you can buy or sell billions of dollars of T-Bills in the secondary market in seconds, with negligible market impact.
Ahh. Gotcha now.
To follow up with this, if you buy T-Bills online, you can cash them directly into your bank account 24/7. You don’t even need to go to the bank to cash them unless you have paper ones.
Question: if you walk in to BofA, Wells-Fargo, US Bank, etc. could you take in a million in paper bonds and say, “Cash these and put it into my account.”
You would use a brokerage account to buy or sell T-Bills in the secondary market. Then use a wire transfer to send funds wherever you wish.
Paper bonds? Everything is electronic book entry now.
The problem with T-Bills is that they mature every few months. That’s why you go with a government money market fund – the manager reinvests the money in new T-Bills and short date assets for you.
If you have your T-Bills in a brokerage account and they mature, the money will end up in their money market account anyway until you get around to buying more.
We’re talking about hundreds of millions of dollars here. Buying or selling T-Bills yourself requires minimal management, because you can easiily put hundreds of millions into one issue. So you’re not managing a portfolio, you can have one instrument with one maturity. All you have to do is remember to reinvest it when it matures, so once every few months.
A government money market fund is an alternative, but you’re basically just introducing a middle man. If you ask a money market fund manager for a price in hundreds of millions, he’s going to charge a bid-ask spread that reflects his transactions costs of going out and buying or selling Bills as required. Maybe that suits you, maybe it doesn’t. It’s not what I’d do - I don’t really see any significant convenience advantage, and it just introduces an unnecessary layer and loss of transparency about exactly what you own.
According to the weather forecast, it’s a cloudy day in WI today; no sun.
Slight nit: (unless they changed it) it’s an option. You open a money market acct, then need to fill out an extra form / agreement checkbox / signature to get the checkwriting option; it doesn’t automatically come with your MM acct
There are money market funds where the minimum investment is $1 million; $100mm isn’t a large amount of money for an institutional money market fund.
I’m sure that’s true. It has been a LONG time since I first opened my account.
Not true. If you purchase bonds (or bills?) with your income tax refund they send you a paper bond. I just did this for a Series I bond and will need to move it to my electronic account.
Sure - that’s what most institutions who do have OP’s stated requirements for liquidity and safety of surplus cash in these amounts will use. They pay a small management fee for the convenience, and they will have to do due diligence on knowing exactly what instruments the fund is allowed to buy. For complete safety and liquidity, it will be restricted to short term government debt.
In any event - whether you do it directly in the secondary market or indirectly via a government money market fund, to satisfy OP’s criteria you’re buying and selling T-Bills.
A brokerage cash account will easily protect a couple of million this way. As I mentioned above, Fidelity’s cash account is insured to $1.9 million (or maybe $1.25 million, or maybe $2.15 million), so it’s safe in the event Fidelity goes bankrupt.
That cash account can be treated just like a checking account. You can get checks, click to pay bills, and get an ATM card. The only thing you can’t do is walk into a Fidelity office and leave with a pile of cash, but a few clicks can transfer the money to a normal bank, where you can do that.
There are a few options of how the cash is held, either straight cash, or in money market or bond funds, which increase the insured limit. You can also move the cash into and out of stocks, bonds, mutual funds, etc.
So, if somebody handed me a check for $ millions, I’d deposit it in my brokerage account. Then if I wanted to pay off my and everybody else in the families mortgages I could just write checks to the mortgage companies directly against the brokerage account. If I wanted to make it rain in the champagne room, I could just stick my brokerage account ATM card in the overpriced cash machine and pull out the daily limit.
Then if Fidelity did a Lehman’s 2.0, it would suck for awhile, but I’d get my money back.