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Sweep Accounts: Something most brokerage firms would rather you ignore
"Most brokerage firms have found a subtle way to squeeze money out of their customers. The trick: switching their sweep accounts from higher-yielding money market mutual funds to lower-yielding bank accounts."
@MFO: Members: At Morgan Stanley, interest, and dividends are automatically put in a sweep account paying .38%, and clients must ask broker to have them transferred to a money market account paying 1.77% each and every time. Regards, Ted
Hi @Ted Thank you for your information. Must you make an actual phone call for the transfer or are you able to do this electronically at your account page? Either way, a lot of busy work that you are not able to set the "money market" as the account of choice. Obviously, the amount of money earned or not, for temporary parked money over time could be substantial. Thank you, Catch
That is a great point @Old_Joe for anyone who is not watching the cash in their brokerage portfolio. The adviser I work with at Schwab pointed out to me a couple years ago that I should keep cash in their money market option instead of the sweep. At that time MM accounts weren't paying much more than the sweep account, but it was great advise because they sure are now. I believe Schwab's MM is over 2% now where the sweep is in the .2-.3% range. When you need the cash to make a fund or stock buy it's a quick click on the computer to move it back to the sweep.
Same at TD. We have sweep accounts paying next to nothing - there are a few TD-branded MMs that you need to contact an 'advisor' to move money into/out of, and they have higher ERs too. Oh ... if you want to use another MM fund, like a Vanguard MM, you're paying TFs too. So clearly they want to make it difficult for customers to use anything but the lowest-paying sweep funds they have.
So, the sweep account must be used to receive transaction money from dividends, a fund sell, etc. and is also the account that must be used for a purchase of an equity fund, etc.??? ADD: in total' for a large organization; the amount of money that is parked in sweep accounts must provide a sweet and easy financial gain for the organization, yes?
So, the sweep account must be used to receive transaction money from dividends, a fund sell, etc. and is also the account that must be used for a purchase of an equity fund, etc.???
Another place Schwab is making money on that cash is through their robo, Intelligent Portfolio's. Many of these portfolios have 10% or more in cash making fractions of a percent. I've been a proponent of these portfolios and that cash % didn't bother me before. I understand that is how they can offer their robos cost-free, but now I have to give it more thought as MM interest rises along with interest rates. 1/2 my IRA money is in one one of these robos.
So, the sweep account must be used to receive transaction money from dividends, a fund sell, etc. and is also the account that must be used for a purchase of an equity fund, etc.???
Correct. The MM is just another 'fund'. It has a ticker just like a fund. You buy and sell it using the sweep like any other fund.
Fidelity lets you designate one of their safer MM funds as your "core position," which is the position $ from buys and sells is deducted from and added to -- fundamentally equivalent to a sweep, I guess, but no transfers after transactions required to get an MM rate on your cash. The higher yielding MMs (typically with substantial minimums) are separate funds you can buy/sell as any other stock, fund, etc. position.
I really lucked out with my Wellstrade PMA account (not available anymore) where I have 100 free trades a year INCLUDING transaction fee funds. The scoundrels do not even list their mmkt funds available on the platform, because they would much prefer you make almost nothing in the required sweep account but by calling and digging and more digging I am able to buy FNSXX with a 7 day yield of 2.36 with a $1 minimum purchase instead of the 1 mill for instit buyers. And please do not castigate me for staying with Wells Fargo. I guarantee you in some way or another all banks and brokerages are taking you for everything they can get ,Vanguard included. Banks and brokerages are Not our friends!!The key is to spend the time if you have it, to research and minimize their take and then maximize yours. I just move any money from dividends and sales in the sweep with a click of the mouse into my FNSXX holding and vice versa.
At Fidelity, money that you have in a position MMF can be used automatically to purchase securities. There is no need to explicitly transfer the cash to your core account. This automatic "reverse sweep" means that you don't have to worry about having the cash in the right place at the right time or about accidentally buying on margin if the cash wasn't moved in time.
There's still the minor annoyance of explicitly moving cash from your core account to the position MMF.
Comments
Does this link work ?
Derf
OOOPs I now see your link >
Regards,
Ted
Thank you for your information.
Must you make an actual phone call for the transfer or are you able to do this electronically at your account page?
Either way, a lot of busy work that you are not able to set the "money market" as the account of choice.
Obviously, the amount of money earned or not, for temporary parked money over time could be substantial.
Thank you,
Catch
Same at TD. We have sweep accounts paying next to nothing - there are a few TD-branded MMs that you need to contact an 'advisor' to move money into/out of, and they have higher ERs too. Oh ... if you want to use another MM fund, like a Vanguard MM, you're paying TFs too. So clearly they want to make it difficult for customers to use anything but the lowest-paying sweep funds they have.
So, the sweep account must be used to receive transaction money from dividends, a fund sell, etc. and is also the account that must be used for a purchase of an equity fund, etc.???
ADD: in total' for a large organization; the amount of money that is parked in sweep accounts must provide a sweet and easy financial gain for the organization, yes?
I have no idea how other brokers do that dance.
There's still the minor annoyance of explicitly moving cash from your core account to the position MMF.