Monday, May 26, 2008

Earn more from cash in brokerage accounts

Here's something to be aware of, brokerages are sweeping the cash in accounts into lower yielding bank deposit accounts instead of money market funds (the story is at the bottom of the BusinessWeek page).

An increasing number of brokerages are, unless a client says otherwise, sweeping customers' stray cash from dividends and other payments not into money-market funds but into their much lower-yielding cousins, bank deposit accounts. Only 4 out of 20 brokerages sweep money into the higher-yielding money funds, according to a survey. The bank sweep accounts had an average yield of 0.56%, compared with 2.47% for a typical money fund. The lowest yield offered: 0.25%.
I checked out my own brokerage's rate differences between the bank deposit account and the money market fund (doing a search for 'cash sweep' to help locate the relevant information). To be entirely technical, the bank deposit account is a money market deposit account. The rates at my brokerage are much higher for the money market fund, but you're required to have $100,000 in cash to use that fund instead of the bank deposit account.