Can I Roll a Mutual Fund Over Into a Bank?
People who own mutual funds can roll them into banks by selling the shares or through an account transfer. Shareholders who no longer wish to own mutual funds sell the shares and invest in certificates of deposits or savings or checking accounts. Mutual fund owners who want to keep the shares can transfer the funds into a brokerage account. Most banks have investment divisions that offer brokerage accounts.
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Types
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There are three main types of mutual funds: stock funds, bond funds and money-market mutual funds. Stock funds cater to more aggressive investors. Stockholders have ownership stakes in a pool of companies and enjoy the benefits of stock increases when companies do well and suffer losses when companies falter. Bonds are debt instruments in which the bondholder is loaning money to an entity in return for interest payments. Money-market mutual funds are conservative investments containing short-term debt instruments that pay interest.
Benefits
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People who liquidate mutual funds and invest the proceeds in bank-issued products enjoy the protection of the Federal Deposit Insurance Corporation. The FDIC insures deposits up to $250,000 per account owner per bank.
Mutual-fund owners who transfer funds to a bank's brokerage firm get the convenience of having their accounts in one place. Brokerage accounts can house bank-issued certificates of deposit as well as traded securities, and customers receive one consolidated statement with all their brokerage holdings.
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Considerations
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People who bought A-Class mutual-fund shares can sell the funds without incurring fees because they paid fees at the time of purchase. People who paid no up-front fees usually pay back-end fees. If shareholders sell B-class shares within seven years of purchase or C-class shares within one year, they pay a load fee. The C-class fees amount to 1 percent of principal but B-share fees can cost as much as 5 percent of the principal.
Misconceptions
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Although mutual funds are not protected by FDIC insurance, many investors are protected in the event that their broker goes bankrupt. The Securities Investor Protection Corporation provides $500,000 of coverage for investors at SIPC member firms. The insurance does not protect against market losses but does protect investors from losses associated with failed brokerage firms.
Mutual funds not only contain stocks and bonds but also some bank-issued jumbo certificates of deposits. Fund managers buy short-term CDs and stow money in them between stock purchases.
Warning
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People who own mutual-fund Individual Retirement Accounts are subject to tax penalties if they transfer the funds into non-qualified bank accounts. The Internal Revenue Service requires IRA custodians to withhold 20 percent of disbursement amounts for income tax. Additionally, people below the age of 59 1/2 must pay a 10 percent premature-withdrawal penalty. To avoid the penalty fees, customers should set up a bank CD IRA and roll the mutual fund proceeds directly into it.
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Comments
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nice knowledge
