Fidelity: One Account to Rule Them All (including checking and savings)?

Update 6-25-24: I originally posted this in August of 2023. At that time, the Cash Management Account (CMA) at Fidelity only allowed you to put your “core position” in an FDIC-insured bank account that was paying around 2.7%. Since Fidelity’s brokerage account’s core position was a Money Market paying around 4.9%, that was my recommendation. About a week ago Fidelity added the ability to specify a Money Market Fund as the default option for the Cash Management Account. This now makes the CMA the better choice so I’ve rewritten the following to reflect that.

I’m a big fan of using Ally Bank for checking and savings (or money market). They are currently paying 0.1% on checking, 4.2% on savings, and 4.2% on their money market account, they don’t have ticky-tack fees and things just generally work well. I’ve written before about how they are part of our strategy for our short-term money (savings). I still believe that Ally is a great place for this, but I recently read a post from Harry Sit that has me revisiting this and considering making a change (and/or changing my recommendation for people switching from more traditional, low-yield bank accounts).

So, first, go read the (somewhat lengthy, but very detailed and very good) post from Harry. Seriously, you need to go read it because I’m not going to repeat the information he goes through because he’s already done a fantastic job of laying it all out. I’ll wait while you go read it, then you can return here for some additional thoughts.

My Thoughts

1. First, this is a very well written post that lays out the pros and cons of this approach. While Harry describes two ways to use Fidelity as a checking/savings account, I’m only going to focus on the second one, using the CMA as a Checking/Savings Combo. The other option is fine, and may meet some people’s specific needs but, for me, it’s the second version that makes the most sense because of the simplicity. It eliminates the “need” to pay attention and shift money from checking to savings to money market and back as your balances fluctuate. As Harry says in the comments (and the comments are well worth your time as well),
   
   The point of the account is that you can dump all short-term money in there and shed all micromanaging whether you have too much or too little in this account or that account. Every dollar earns good interest. Every dollar is available for everything.
   
2. His point about “blended interest rate” is worth emphasizing. While you can get slightly better yields on a money market account at Vanguard, when you take into account the “cash drag” of your average balance in your checking account you’ll likely come out ahead by keeping your checking/savings/money market all in the Fidelity CMA account. From there, you can always choose to purchase T-Bills (or really anything) if your balance gets high enough that you want to invest for a longer time horizon. And, again, it’s simple, you don’t really have to pay much attention to it at all because both “checking” and “savings” are in the same account, and earning very high interest (around 4.9% right now, but that varies with market interest rates).
   
3. The four “downsides” are not applicable to everyone and are easily worked around.
   
   • Not being able to deposit cash (which is also a downside of Ally) doesn’t really affect that many people but, if it affects you, you can always keep a local bank account open just for that purpose.
     
   • Money Market accounts are not FDIC insured but, as Harry says, are pretty much just as safe if you buy a government or Treasury money market fund,
     
     When you buy a government or Treasury money market fund, the underlying investments in the money market fund are backed by the government.
     
   • You can’t use Zelle directly from the account (although you can apparently link the debit card through the Zelle app, which means you effectively could). Again, keeping another account open (local or Ally) that has access to Zelle is an easy solution for this.
     
   • You can’t get a cashier’s check. Again, if this is something you need, you can get from Ally (takes a few days) or your local bank/credit union.

So, overall, I think this makes a compelling case and, for the first time, is making me consider moving away from Ally (although would probably keep Ally open for using Zelle). If you choose this option, it’s important to change your core position in Fidelity’s CMA to the Money Market account (otherwise you’ll get the lower bank account interest rate).

It’s also making me consider something else. While I’ve always recommended Vanguard and Fidelity as the two best options for your brokerage account, I’ve also always leaned toward Vanguard (even though Fidelity arguably has better customer service). That’s because I trust Vanguard to continue to offer low-fee products more than I trust Fidelity, because Vanguard is owned by its customers whereas Fidelity has private ownership (and therefore needs to make a profit). While Fidelity offers many good investment options and you can replicate any low-cost, diversified index fund asset allocation that you might have at Vanguard at Fidelity, I’ve always worried that some folks might get sucked into their higher fee products. (For example, Fidelity seems to have made the names of their index-based target date funds and their actively managed target date funds intentionally confusing.) But if we were to switch our checking/savings to Fidelity, that might tip the balance to us using them as our brokerage account as well for the simplicity and convenience. I suspect we would probably still leave our investments at Vanguard but, if I was just starting out, it might make sense to go all Fidelity.

One last thing. If you are thinking of doing this, see if you can take advantage of Fidelity’s current “special offers.” For example, at times they offer a $100 signup bonus for opening a new account. If you’re going to do this, might as well get a little bonus as well!