Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

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Sandtrap
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Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Sandtrap » Tue Feb 05, 2019 3:43 pm

Article Info. FYI.

Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Blog article here:
https://www.mymoneyblog.com/brokerage-c ... ounts.html
A recent WSJ article by Jason Zweig calls attention to one of the hidden ways that brokerage firms make money from you. As interest rates rise, they go out and earn the highest market rates while giving you a lot less on your idle cash. The difference adds up to big profits. . . . . . Default options often prey on your inattention and laziness. Here are some ways to avoid the low interest rates of the bank sweep accounts.

Explore all your sweep options. Some places give you multiple alternatives for your cash sweep. For example, Fidelity has Fidelity Government Money Market Fund (SPAXX), Fidelity Treasury Fund (FZFXX), and FCASH. The two funds have SEC yields over 1.5% right now, while FCASH earns only 0.25% on balances under $100,000.
Keep your cash accounts empty automatically. You can set up automatic dividend reinvestment, or perhaps an automatic deposit of dividends into a high yield savings account. That should keep most of your interest and dividends from piling up as cash.
Manually reinvest often or transfer to alternative funds. Keep an eye on your cash balance, and invest it as soon as possible into stocks, bonds, or a higher-yielding money market fund alternative. Some accounts offer a text alert if you balance exceeds a certain amount like $1,000.
Move your assets to another firm. Vanguard still has a decent sweep option (VMMXX, see below). Fidelity still has two decent money market sweep options as well (SPAXX and FZFXX).
Vanguard isn’t incentivized to play these interest-skimming games. Vanguard’s only sweep account nowadays is . . . . . .

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Broken Man 1999 » Tue Feb 05, 2019 3:54 pm

I'm probably losing a bit of interest in MM as I got rid of Vanguard Prime Money Market fund when Vanguard changed their sweep account to Vanguard Federal Money market. Receiving a tiny bit more in interest just wasn't enough for me to hold Prime Money Market.

Plus, I try to have very little in any money market fund, so I don't get too much interest from any MM fund, no matter the interest rate being paid.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Nate79 » Tue Feb 05, 2019 4:10 pm

I wish Schwab had an automatic feature that I could turn on to use their money market funds as sweep accounts but it's not that big of a deal. I move money that I don't need for ~1 month expenses or so into the MMF manually. Not all brokerages agree that cash should be swept into a cash fund that is not FDIC insured - i.e. can lose money.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by SGM » Tue Feb 05, 2019 4:38 pm

I keep very little in sweep accounts. I use higher interest paying money market accounts. I also insisted that an executor take money out of a sweep account and put it into higher interest paying accounts until distribution to extended family members. The so called advisor to the elderly person kept a lot of money in low interest sweep accounts while awaiting reinvestment.

I keep the least amount necessary in my checking account which pays low interest. No longer will I have every dividend go into checking. Instead they go into a higher interest MM and it is either spent or reinvested.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by hudson » Tue Feb 05, 2019 4:57 pm

Vanguard's sweep account...Vanguard Federal Money Market Fund (Settlement fund)...distributed 2.31% on Jan. 31, 2019....not bad.

I usually keep close watch on my accounts around interest time; if I can't buy my go-to Vanguard mutual fund...because of the "excess trading clause, I'll buy a low expense ETF like MUB, VTEB, BND, or VMBS depending on whether the account is taxable or not. If I watch carefully, I can keep my settlement fund lower than say VTEB's price of $51. When the "excess trading clause" let's go, I can just move the remainder to my go-to mutual fund.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by 2015 » Tue Feb 05, 2019 9:22 pm

No, because I don't have such a thing. I opt for simplicity at every turn because run but you can't hide from the secondary and unintended consequences of an adaptive system with unknown agents, intentions, and methods.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Ferdinand2014 » Wed Feb 06, 2019 8:15 am

Sandtrap wrote:
Tue Feb 05, 2019 3:43 pm
Article Info. FYI.

Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Blog article here:
https://www.mymoneyblog.com/brokerage-c ... ounts.html
A recent WSJ article by Jason Zweig calls attention to one of the hidden ways that brokerage firms make money from you. As interest rates rise, they go out and earn the highest market rates while giving you a lot less on your idle cash. The difference adds up to big profits. . . . . . Default options often prey on your inattention and laziness. Here are some ways to avoid the low interest rates of the bank sweep accounts.

Explore all your sweep options. Some places give you multiple alternatives for your cash sweep. For example, Fidelity has Fidelity Government Money Market Fund (SPAXX), Fidelity Treasury Fund (FZFXX), and FCASH. The two funds have SEC yields over 1.5% right now, while FCASH earns only 0.25% on balances under $100,000.
Keep your cash accounts empty automatically. You can set up automatic dividend reinvestment, or perhaps an automatic deposit of dividends into a high yield savings account. That should keep most of your interest and dividends from piling up as cash.
Manually reinvest often or transfer to alternative funds. Keep an eye on your cash balance, and invest it as soon as possible into stocks, bonds, or a higher-yielding money market fund alternative. Some accounts offer a text alert if you balance exceeds a certain amount like $1,000.
Move your assets to another firm. Vanguard still has a decent sweep option (VMMXX, see below). Fidelity still has two decent money market sweep options as well (SPAXX and FZFXX).
Vanguard isn’t incentivized to play these interest-skimming games. Vanguard’s only sweep account nowadays is . . . . . .
Fidelity will let you choose the sweep account that you can use. Some are available online and you can change yourself. Others (and depending on account) you can call them to change. The base sweep cash choice is an FDIC insured option. Safe, FDIC insured, but low interest. They automatically will keep adding additional program banks if your account exceeds 250,000 so your money is always FDIC insured. If you choose the MM fund sweep accounts you lose FDIC insured, but gain interest. I actually use FDLXX (Fidelity Treasury Only) money market fund for all of my sweep accounts. It currently pays 2.2%. It of course is not FDIC insured, but it only invests as the name implies in pure treasury bills. It's minimum liquidity is over 99% daily and weekly, far exceeding any money market funds minimum government requirements (and most mm funds) and hopefully will be safe in another 2008 credit lockup. scenario.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by dwickenh » Wed Feb 06, 2019 8:28 am

This is a favorite for managed accounts if you don't watch where the cash is being held. I keep an eye on a Merrill Lynch account in a trust. They were holding 80,000 in cash at .05% with a AUM fee of 1%. Talk about losing to inflation! I got them to agree to transfer any cash to a "holding account" that was not subject to the AUM fee. Now there is very little cash being held at .05%, imagine that!
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by goodenyou » Wed Feb 06, 2019 10:02 am

I just moved 6-figures of balance out of Schwab Bank cash account that I had in there for the last few months (after the sale of some commercial property) to my Vanguard PMM for that reason . Now I am deciding between VMMXX at 2.47% (taxable) or VWIUX at 2.38% (tax exempt).
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Sandtrap » Wed Feb 06, 2019 10:04 am

Ferdinand2014 wrote:
Wed Feb 06, 2019 8:15 am
Sandtrap wrote:
Tue Feb 05, 2019 3:43 pm
Article Info. FYI.

Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Blog article here:
https://www.mymoneyblog.com/brokerage-c ... ounts.html
A recent WSJ article by Jason Zweig calls attention to one of the hidden ways that brokerage firms make money from you. As interest rates rise, they go out and earn the highest market rates while giving you a lot less on your idle cash. The difference adds up to big profits. . . . . . Default options often prey on your inattention and laziness. Here are some ways to avoid the low interest rates of the bank sweep accounts.

Explore all your sweep options. Some places give you multiple alternatives for your cash sweep. For example, Fidelity has Fidelity Government Money Market Fund (SPAXX), Fidelity Treasury Fund (FZFXX), and FCASH. The two funds have SEC yields over 1.5% right now, while FCASH earns only 0.25% on balances under $100,000.
Keep your cash accounts empty automatically. You can set up automatic dividend reinvestment, or perhaps an automatic deposit of dividends into a high yield savings account. That should keep most of your interest and dividends from piling up as cash.
Manually reinvest often or transfer to alternative funds. Keep an eye on your cash balance, and invest it as soon as possible into stocks, bonds, or a higher-yielding money market fund alternative. Some accounts offer a text alert if you balance exceeds a certain amount like $1,000.
Move your assets to another firm. Vanguard still has a decent sweep option (VMMXX, see below). Fidelity still has two decent money market sweep options as well (SPAXX and FZFXX).
Vanguard isn’t incentivized to play these interest-skimming games. Vanguard’s only sweep account nowadays is . . . . . .
Fidelity will let you choose the sweep account that you can use. Some are available online and you can change yourself. Others (and depending on account) you can call them to change. The base sweep cash choice is an FDIC insured option. Safe, FDIC insured, but low interest. They automatically will keep adding additional program banks if your account exceeds 250,000 so your money is always FDIC insured. If you choose the MM fund sweep accounts you lose FDIC insured, but gain interest. I actually use FDLXX (Fidelity Treasury Only) money market fund for all of my sweep accounts. It currently pays 2.2%. It of course is not FDIC insured, but it only invests as the name implies in pure treasury bills. It's minimum liquidity is over 99% daily and weekly, far exceeding any money market funds minimum government requirements (and most mm funds) and hopefully will be safe in another 2008 credit lockup. scenario.
Great actionable information for everyone!!
Thanks!!
j :happy

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Sandtrap » Wed Feb 06, 2019 10:05 am

goodenyou wrote:
Wed Feb 06, 2019 10:02 am
I just moved 6-figures of balance out of Schwab Bank cash account that I had in there for the last few months (after the sale of some commercial property) to my Vanguard PMM for that reason . Now I am deciding between VMMXX at 2.47% (taxable) or VWIUX at 2.38% (tax exempt).
Have minor balances at Schwab.
Considering moost of it out for this reason.
thanks
j :happy

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by MnD » Wed Feb 06, 2019 10:51 am

Not sure why folks feel compelled to move cash out of Schwab, assuming they want to continue to keep other investments there.
Across 6 Schwab accounts we have a grand total of 37 cents in their FDIC cash sweep accounts.
Anything $1 or more can be moved to SWVXX money market fund at 2.31%. For our cash and very short-term fixed income needs we have about 15% in SWVXX at 2.31% and 85% in a 6-month 6-bill T-bill ladder with current reinvestment at 2.61% TEY in our lowish state tax bracket. Blended yield 2.57%. Brokered CD's are another option at Schwab.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Elric » Wed Feb 06, 2019 10:59 am

MnD wrote:
Wed Feb 06, 2019 10:51 am
Not sure why folks feel compelled to move cash out of Schwab, assuming they want to continue to keep other investments there.
Across 6 Schwab accounts we have a grand total of 37 cents in their FDIC cash sweep accounts.
Agreed. It's disappointing that cash balances earn such low interest in Schwab brokerage accounts, but you can sweep them either manually or, on a monthly basis, automatically, into another Schwab OR EXTERNAL ACCOUNT. That's what we are doing.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by MnD » Wed Feb 06, 2019 11:13 am

Roughly 1/2 of Charles Schwab Inc. revenue (an an amount roughly equal to their entire pre-tax profit) is earned from "net interest income", the difference between what they are earning on (primarily) cash in customers accounts and what they are paying out in interest on those accounts. The other half is earned by a mix of smaller percentages from in-house mutual fund management fees, investment advisory fees and commissions.

This is why expense ratios, commissions, charges for advisory services, minimum balances ect. keep dropping while customer service levels remain high. If you want the free lunch at Schwab you have to stay awake regarding managing your cash balances.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by hudson » Wed Feb 06, 2019 12:09 pm

goodenyou wrote:
Wed Feb 06, 2019 10:02 am
I just moved 6-figures of balance out of Schwab Bank cash account that I had in there for the last few months (after the sale of some commercial property) to my Vanguard PMM for that reason . Now I am deciding between VMMXX at 2.47% (taxable) or VWIUX at 2.38% (tax exempt).
Apologies...you probably already know this...check the distribution yield for VWIUX. As you know SEC yield is useful, but distribution yield is what you get....at least in the short term.

https://investor.vanguard.com/mutual-fu ... ions/vwiux

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Nate79 » Wed Feb 06, 2019 12:21 pm

hudson wrote:
Wed Feb 06, 2019 12:09 pm
goodenyou wrote:
Wed Feb 06, 2019 10:02 am
I just moved 6-figures of balance out of Schwab Bank cash account that I had in there for the last few months (after the sale of some commercial property) to my Vanguard PMM for that reason . Now I am deciding between VMMXX at 2.47% (taxable) or VWIUX at 2.38% (tax exempt).
Apologies...you probably already know this...check the distribution yield for VWIUX. As you know SEC yield is useful, but distribution yield is what you get....at least in the short term.

https://investor.vanguard.com/mutual-fu ... ions/vwiux
As I understand SEC yield will tell what one expects to get moving forward. Distribution yield is backward looking (what you got, not what you get) thus when comparing two funds SEC yield is better for deciding about future return.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Nate79 » Wed Feb 06, 2019 12:22 pm

MnD wrote:
Wed Feb 06, 2019 11:13 am
Roughly 1/2 of Charles Schwab Inc. revenue (an an amount roughly equal to their entire pre-tax profit) is earned from "net interest income", the difference between what they are earning on (primarily) cash in customers accounts and what they are paying out in interest on those accounts. The other half is earned by a mix of smaller percentages from in-house mutual fund management fees, investment advisory fees and commissions.

This is why expense ratios, commissions, charges for advisory services, minimum balances ect. keep dropping while customer service levels remain high. If you want the free lunch at Schwab you have to stay awake regarding managing your cash balances.
They are a bank. Do you expect othereise?

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by hudson » Wed Feb 06, 2019 12:39 pm

Nate79 wrote:
Wed Feb 06, 2019 12:21 pm
hudson wrote:
Wed Feb 06, 2019 12:09 pm
goodenyou wrote:
Wed Feb 06, 2019 10:02 am
I just moved 6-figures of balance out of Schwab Bank cash account that I had in there for the last few months (after the sale of some commercial property) to my Vanguard PMM for that reason . Now I am deciding between VMMXX at 2.47% (taxable) or VWIUX at 2.38% (tax exempt).
Apologies...you probably already know this...check the distribution yield for VWIUX. As you know SEC yield is useful, but distribution yield is what you get....at least in the short term.

https://investor.vanguard.com/mutual-fu ... ions/vwiux
As I understand SEC yield will tell what one expects to get moving forward. Distribution yield is backward looking (what you got, not what you get) thus when comparing two funds SEC yield is better for deciding about future return.
Nate79, You are exactly right.
I'm very interested in what I get right now. If I was getting VWIUX's current 2.38% SEC yield, I would move to something else...maybe a CD. According to the link above, VWIUX has been distributing between 2.77% and 2.96% since September 2017. I've been watching...and owning VWIUX for a long time. I believe that it will pay out around 2.9% on the next distribution date around the first of March. I can't explain why, but the SEC yield and the distribution yield have been far apart for a long time. I've heard the explanation why, but I didn't really understand it. I would speculate that the distribution yield will continue at 2.77% or higher for a while. I say that because, it's been paying higher than the SEC yield for a long time. Again, if it drops much below 2.77%, I'll look for something else.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by MnD » Wed Feb 06, 2019 1:13 pm

Nate79 wrote:
Wed Feb 06, 2019 12:22 pm
MnD wrote:
Wed Feb 06, 2019 11:13 am
Roughly 1/2 of Charles Schwab Inc. revenue (an an amount roughly equal to their entire pre-tax profit) is earned from "net interest income", the difference between what they are earning on (primarily) cash in customers accounts and what they are paying out in interest on those accounts. The other half is earned by a mix of smaller percentages from in-house mutual fund management fees, investment advisory fees and commissions.

This is why expense ratios, commissions, charges for advisory services, minimum balances ect. keep dropping while customer service levels remain high. If you want the free lunch at Schwab you have to stay awake regarding managing your cash balances.
They are a bank. Do you expect othereise?
Among other things. Charles Schwab engages in, through 3 primary subsidiaries, "wealth management, securities brokerage, banking, asset management, custody, and financial advisory services". One of their subsidiaries is a bank (namely Charles Schwab Bank). The others are securities broker-dealer (Charles Schwab & Co., Inc.) and investment advisor for in-house funds (Charles Schwab Investment Management, Inc.).

The 10-K is a great source of factual information about Schwab and a nice summary of their overall cash balance sweep strategy is provided right up front on numbered page 2 which should be helpful to you.
https://aboutschwab.com/images/uploads/ ... k_2017.pdf

Customers would do well to keep cash and other short-term securities on the brokerage side of Charles Schwab in MM funds, t-bills, brokered CD's ect. Charles Schwab Inc. is doing very well by increasingly have the "default" be to sweep customers cash into their banking subsidiary, given their current practice of paying relatively low interest rates on bank deposits. Hence the need for customers to manage their cash balances at Schwab.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Save4life » Thu Feb 07, 2019 7:59 am

I have a sweep at vanguard, fidelity and Merrill. Due to the platinum honors for bofa and credit cards. I like the free trades there at Merrill I guess. Vanguard treated my sweep the best followed somewhat closing behind by fidelity.
But with Merrill u got to watch those jokers. They almost treated my sweep account like my bofa checking acct.
Terrible. But they do have decent money market rates. Just don’t leave it in the sweep. Until u about to trade.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Sandtrap » Sat Feb 09, 2019 9:51 am

dwickenh wrote:
Wed Feb 06, 2019 8:28 am
This is a favorite for managed accounts if you don't watch where the cash is being held. I keep an eye on a Merrill Lynch account in a trust. They were holding 80,000 in cash at .05% with a AUM fee of 1%. Talk about losing to inflation! I got them to agree to transfer any cash to a "holding account" that was not subject to the AUM fee. Now there is very little cash being held at .05%, imagine that!
+1
I had a relative (long passed Aunt) with "Millions" at Merrill Lynch because the Adviser was "such a nice man". Fees were terrible. Nobody could convince her otherwise. :shock:

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Sandtrap » Sat Feb 09, 2019 9:52 am

MnD wrote:
Wed Feb 06, 2019 1:13 pm
Nate79 wrote:
Wed Feb 06, 2019 12:22 pm
MnD wrote:
Wed Feb 06, 2019 11:13 am
Roughly 1/2 of Charles Schwab Inc. revenue (an an amount roughly equal to their entire pre-tax profit) is earned from "net interest income", the difference between what they are earning on (primarily) cash in customers accounts and what they are paying out in interest on those accounts. The other half is earned by a mix of smaller percentages from in-house mutual fund management fees, investment advisory fees and commissions.

This is why expense ratios, commissions, charges for advisory services, minimum balances ect. keep dropping while customer service levels remain high. If you want the free lunch at Schwab you have to stay awake regarding managing your cash balances.
They are a bank. Do you expect othereise?
Among other things. Charles Schwab engages in, through 3 primary subsidiaries, "wealth management, securities brokerage, banking, asset management, custody, and financial advisory services". One of their subsidiaries is a bank (namely Charles Schwab Bank). The others are securities broker-dealer (Charles Schwab & Co., Inc.) and investment advisor for in-house funds (Charles Schwab Investment Management, Inc.).

The 10-K is a great source of factual information about Schwab and a nice summary of their overall cash balance sweep strategy is provided right up front on numbered page 2 which should be helpful to you.
https://aboutschwab.com/images/uploads/ ... k_2017.pdf

Customers would do well to keep cash and other short-term securities on the brokerage side of Charles Schwab in MM funds, t-bills, brokered CD's ect. Charles Schwab Inc. is doing very well by increasingly have the "default" be to sweep customers cash into their banking subsidiary, given their current practice of paying relatively low interest rates on bank deposits. Hence the need for customers to manage their cash balances at Schwab.
I did not know all of this.
This is great information on Schwab that others may not be aware of. :shock:
Thanks for taking the time and posting.
j :happy

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by jeffyscott » Sat Feb 09, 2019 10:10 am

MnD wrote:
Wed Feb 06, 2019 1:13 pm
Customers would do well to keep cash and other short-term securities on the brokerage side of Charles Schwab in MM funds, t-bills, brokered CD's ect. Charles Schwab Inc. is doing very well by increasingly have the "default" be to sweep customers cash into their banking subsidiary, given their current practice of paying relatively low interest rates on bank deposits. Hence the need for customers to manage their cash balances at Schwab.
It's not just the default, it is the only option for (I think) most.

Since we have moved to Schwab as our primary bank, I am on the site very often anyway, so easy enough to check for cash needing to be moved from the brokerage sweep account.

Schwab does not seem so bad considering that our former primary bank is still paying 0.01% on checking, so Schwab's sweep and checking rates are 33 and 40 times higher. And the former "bank" is a credit union, so not for profit and supposedly run for the benefit of members.
press on, regardless - John C. Bogle

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by ERguy101 » Sat Feb 09, 2019 10:50 am

dwickenh wrote:
Wed Feb 06, 2019 8:28 am
This is a favorite for managed accounts if you don't watch where the cash is being held. I keep an eye on a Merrill Lynch account in a trust. They were holding 80,000 in cash at .05% with a AUM fee of 1%. Talk about losing to inflation! I got them to agree to transfer any cash to a "holding account" that was not subject to the AUM fee. Now there is very little cash being held at .05%, imagine that!
Oh man... And thats with a fee based manager!!

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by German Expat » Thu Mar 14, 2019 6:54 am

goodenyou wrote:
Wed Feb 06, 2019 10:02 am
I just moved 6-figures of balance out of Schwab Bank cash account that I had in there for the last few months (after the sale of some commercial property) to my Vanguard PMM for that reason . Now I am deciding between VMMXX at 2.47% (taxable) or VWIUX at 2.38% (tax exempt).
What did you decide? We have some money we need to park and not sure when its needed (can be between 1 month up to 2 years). I understand it has different risk profiles. We are in the 35% (or potentially 37%) federal tax bracket in 2019 so taxes do play a larger role in the return.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Dottie57 » Thu Mar 14, 2019 7:09 am

I Amat Fidelity. I have noticed if I clear out my sweep account and it goes to zero, the sweep will revert to a low interest Core account instead of remaining with SPAXX. Net time I buy more shares, I’ll leave 5 bucks there.

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Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by goodenyou » Thu Mar 14, 2019 10:05 am

German Expat wrote:
Thu Mar 14, 2019 6:54 am
goodenyou wrote:
Wed Feb 06, 2019 10:02 am
I just moved 6-figures of balance out of Schwab Bank cash account that I had in there for the last few months (after the sale of some commercial property) to my Vanguard PMM for that reason . Now I am deciding between VMMXX at 2.47% (taxable) or VWIUX at 2.38% (tax exempt).
What did you decide? We have some money we need to park and not sure when its needed (can be between 1 month up to 2 years). I understand it has different risk profiles. We are in the 35% (or potentially 37%) federal tax bracket in 2019 so taxes do play a larger role in the return.
I have it in VMMXX for now. I have picked an amount that I would like to keep there for 1-2 years (to build a house), and any additional money saved in taxable for my bond allocation goes to VWIUX. I don't want the needed balance to be at risk for fluctuation in NAV in VWIUX. The monthly dividends from VMMXX are dollar cost averaged into the Total Stock Market Index Fund.
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Eno Deb
Posts: 44
Joined: Sun Feb 03, 2019 4:08 pm

Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Eno Deb » Thu Mar 14, 2019 12:59 pm

Save4life wrote:
Thu Feb 07, 2019 7:59 am
I have a sweep at vanguard, fidelity and Merrill. Due to the platinum honors for bofa and credit cards. I like the free trades there at Merrill I guess. Vanguard treated my sweep the best followed somewhat closing behind by fidelity.
But with Merrill u got to watch those jokers. They almost treated my sweep account like my bofa checking acct.
Terrible. But they do have decent money market rates. Just don’t leave it in the sweep. Until u about to trade.
Can you elaborate on this a bit? Merrill used to have an automatic sweep option to a Blackrock MM fund, but that option was discontinued end of last year. Here's a thread about this:

viewtopic.php?t=265566

People who were enrolled in this option currently still get a special interest rate (around 1.5%) on the standard cash deposit, but that will go away around May. Also, Merrill doesn't seem to offer any good MM funds for purchase (at least I haven't been able to find them). What money market rates are you referring to?

Elric
Posts: 79
Joined: Sat Dec 08, 2018 12:23 am

Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by Elric » Thu Mar 14, 2019 1:26 pm

Elric wrote:
Wed Feb 06, 2019 10:59 am
Agreed. It's disappointing that cash balances earn such low interest in Schwab brokerage accounts, but you can sweep them either manually or, on a monthly basis, automatically, into another Schwab OR EXTERNAL ACCOUNT. That's what we are doing.
+1 We do the same. Move balances to an external account.

JustinR
Posts: 999
Joined: Tue Apr 27, 2010 11:43 pm

Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by JustinR » Fri Mar 15, 2019 2:39 am

You're not supposed to keep your money there for long. You're losing money and that's on you, not the brokerage. They could give you 0% interest if they wanted.

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fortyofforty
Posts: 1353
Joined: Wed Mar 31, 2010 12:33 pm

Re: Are You Indirectly Losing Money via Your Brokerage Cash Sweep Account?

Post by fortyofforty » Fri Mar 15, 2019 6:35 am

I mentioned this over a year ago. Nice to see people like Zweig pick up the banner and carry it forward. If you use ETFs, you WILL end up with some money in the sweep account. Any time you cannot purchase a full share of an ETF you are left with residual funds.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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