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Money-market funds were still a new concept when I first became a broker at Merrill Lynch, whose money-market fund was (still is) called their CMA account—cash management account. You could open the account with $20,000 minimum, but after the account was opened, you could keep whatever you wanted in it and still keep the privileges of the account. Those privileges were many. The first was that the account paid the going interest rate—around 18 percent at that time, in 1280; comparatively, most banks at that time paid no interest at all on checking accounts. You could write as many checks as you wanted per month and were given a debit card as well; you could withdraw from your account through any bank in the world: no fuss, no checks necessary, no fees for these withdrawals. This was great for travelers, who didn’t have to tie up interest-earning money by withdrawing large sums of cash or traveler’s checks.
If you wanted, you could also use this account as a catch-all for other investments you wanted to make or already had. For instance, let’s say you happened to own XYZ stock, which you kept in your safety-deposit box and which sent you dividends in the mail every three months. Most likely that dividend check sat around the house for at least a few days until you either mailed it to the bank or took it there to deposit it. Probably this process took one or two weeks or more. If you had held those shares of XYZ stock in your CMA account instead, the dividend would automatically have been deposited directly into your account the day it was issued and would have begun earning the 18 percent interest at once, or you could have withdrawn it at once.
Merrill Lynch charged a yearly fee of $100 for operating the account. But even with that fee you came out way ahead of the game. Back then, most banks not only paid no interest, but also charged a service fee of $10 a month, which sometimes went higher if you wrote a lot of checks. Thus the service fee alone would be $20 a year more than Merrill was charging for its CMA account, with all those privileges. Most people would have made far more on 18 percent interest than the $100 to do so cost them.
Money-market accounts still work more or less this way. But back then they were still new. To inspire us to sign up clients for the CMA accounts, Merrill Lynch held a contest among all of us brokers: Whoever opened the most CMA accounts would win a trip to Hawaii. They had to offer us something, because it was not to our advantage if clients opened a CMA account—we received no commissions on them. We made money only if our clients bought or sold stocks or bonds or the other investments Merrill offered.
I didn’t win the contest, but I tried to. As I was working on my tan-to-be, though, I learned something about human nature. Those of my clients who had tons of money opened one of these accounts as soon as they heard about it. Those people who weren’t as rich, but who still easily had the $20,000 to open the account, all said, No, I don’t think so. They said they felt safer with their money where it was. They all would have picked up that quarter from the sidewalk, I’m sure, but even when I showed them the hundreds or thousands of dollars they were leaving on the sidewalk, so to speak, they refused to pick it up.