Don't Use Fidelity's Cash Manager

About this video

• Video Title: Don't Use Fidelity's Cash Manager
• Channel: The Frugal Law Professor
• Speakers: [None explicitly named, but the transcript indicates a single speaker]
• Duration: 00:16:19

Overview

This video explains a hidden danger in using Fidelity's Cash Manager for overdraft protection, which can lead to dishonored checks despite having sufficient funds in a linked brokerage account. The speaker shares a personal experience of a dishonored check and details why the Cash Manager system can fail, especially with manual check processing. The video offers a safer alternative for managing Fidelity accounts to avoid these issues and enhance security.

Key takeaways

• Fidelity's Cash Manager is not guaranteed: The Cash Manager feature, intended for overdraft protection, operates on a "best efforts basis" and is not guaranteed, potentially leading to dishonored checks.
• The "hidden danger" of manual processing: When checks are processed manually (due to unreadable MICR lines), the Cash Manager system may not trigger the automatic transfer of funds from a linked brokerage account, resulting in dishonored checks.
• Recommendation for state tax payers: Previously, the speaker recommended the Fidelity Treasury Only Money Market Fund (FDLXX) for its high, state-tax-free interest, with the Cash Manager covering charges. This is now cautioned against due to the system's unreliability.
• Safer alternative: To avoid the risks, it's recommended to keep sufficient funds directly in the cash management account (e.g., FDLXX shares within the cash management account, not just the brokerage account) to cover all charges.
• Enhanced security by isolating accounts: Disabling the Cash Manager and maintaining separate, unlinked brokerage and cash management accounts prevents fraudulent charges on the cash management account from accessing funds in the brokerage account.