Thursday, August 2, 2007

Money Market Choices for TD Ameritrade

The series of posts that I made about my experiences with TD Ameritrade have been very popular at PFStock. Perhaps the most popular of my posts was the one where I exposed Ameritrade's "Hidden" cash sweep account. I have recently come across another cash (money market) option for TD Ameritrade account holders. This is another fund offered through "The Reserve" (website:

The fund is called the Reserve Yield Plus Fund Class R (symbol: RYPQX), and is classified by The Reserve as an "enhanced cash fund". Currently, this fund pays in the neighborhood of 5.4% APY. This rate is much better than the default TD Ameritrade cash option which puts you in a sweep account that pays less than 1% interest.

However, unlike the other Reserve funds (offered through Ameritrade's Total Asset Plan) that I've talked about before, this fund is not available as a sweep option which automatically places your uninvested cash into a money market account. Instead it is traded like a No-Transaction Fee (NTF) mutual fund. You would need to put in a mutual fund order each time that you want to buy or sell the fund.

Now I have a few questions for my readers. Has anybody invested in this type of enhanced cash fund before? 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. And, does anybody know if TD Ameritrade would count each NTF transaction toward qualification for their premier (or APEX) trading status?

I suppose that I would be remiss if I didn't add that The Reserve Yield Plus Fund contains the following disclaimer:
This Fund is not a money market fund. Achievement of the Fund’s objectives cannot be assured. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Yields may vary.

Since the first time that I mentioned the Reserve Yield Plus Fund, I discovered that cash you have in RYPQX is not counted as funds available for trading by TD Ameritrade. Arguably funds held in RYPQX can be considered as cash, but not as "available cash" for the purpose of trading. TD Ameritrade only counts the cash sweep balance here. What this means is that if you want to buy a new stock and don't have enough money in your cash sweep, you will have to sell RYPQX before placing an order.

I think that TD Ameritrade made this process unnecessarily cumbersome. Because RYPQX trades like a mutual fund, there is a 1 day settlement period on funds. For stocks, the settlement date is 3 days later. So in theory, one should be able to execute a stock trade and then later liquidate enough fund holdings to cover the trade in time for settlement. However, the new TD Ameritrade website will not allow you to even enter an order if it thinks you don't have enough in your cash sweep. By my memory, the former Waterhouse website did not have this particular restriction on placing stock trades.


This article was originally published April 11, 2007 . It is being republished because of previous posting problems. It has been updated.


Jay said...

Hi, I don't know the answers to your questions about taxes etc. but as far as buying stocks without enough cash in the account, for me, I've always been able to buy stocks and then put money into the account later if I need to .. It shows up as a margin balance. I trade pretty paltry amounts (a couple thousand dollars' worth here, a couple thousand dollars' worth there) so maybe that's why.

pfstock said...

I will assume that you are the same Jay that left a comment on my original article about this enhanced cash fund. Anyway, I think that what you say is true for margin accounts. The account that I used to purchase RYPQX is an IRA, so I don't have margin capabilities there. In this case, you must have enough available cash before you are allowed to enter an order to buy stock.

I was aware of the 1% expense ratio. However, according to the Reserve, the returns that they show include the effect of a voluntary fee waiver, which may be discontinued at any time. For me, it is not enough to simply take their word on it. I went and calculated out my return for the funds that I've held in RYPQX since February 2007. See Calculating Rate of Return for information on how to do that. And, I can verify that my actual rate of return has been 5.4% (including any expenses) for that time period. Like any money market fund, this rate is always subject to change without notice.

Jay said...

Yes it's me, same poster.. OK thanks for the info! I just hope that they aren't investing in any questionable mortgage derivatives. ;-)

Anonymous said...

The reason it's so cumbersome may be because Ameritrade is making a TON of money off all that idle cash:

"Ameritrade gathered $185 million in revenues by paying clients so little on their idle cash and then 'sweeping' it into an account run by a banking partner, where the money earned Ameritrade a much higher rate."

Benny Widyono said...

Hi. I have trried to rdeem my holdings in RYPQX for three days and have been given the run around. R has published an NAV chart for its MM Funds for 17 and 18 September as $1. But RYPQX was not included in this list. Since it is techincally abond fund it will nto be included in Bush's guarantee of mm funds.

Anonymous said...

Have you been impacted by RYPQX and TD Ameritrade? If so, to join go to :

or send and email to:

Anonymous said...

I saw no info on TD-Ameritrade (my brokerage) &'s website. My call to the Reserve finally got through this afternoon. The staff there said they are looking to post update on rypqx on their website by end of this week. So we'll see.

Anonymous said...

There is a Yahoo Group for victims of RYPQX Reserve Yield Plus Fund:

We have to work together to fight for our best interest.

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