![]() ![]() Other considerations about sweep accountsĬenteno also says that the process of transferring money out of a sweep account isn't necessarily instant. Some currently pay upwards of 4.75% per year. Money market accounts, on the other hand, generally come with check-writing and ACH support by default, and they generally offer competitive interest rates. I could see somebody getting into a situation where they set it up and didn't realize they didn't add the additional features." "A lot of the time those don't come as a default. "You have to elect to have those things," she says. The main difference between a money-market account and a brokerage sweep account is which features they come with by default.Ĭenteno says that many brokerage accounts can offer check-writing features and even ACH - automated clearing house - support for direct deposits or electronic payments, but only if account holders ask for them. You might like: How to use bond/CD ladders as the ultimate hedge to keep your money safe Read your brokerage's fine print to see what kind of insurance, if any, is offered for different sweep accounts. The FDIC and SIPC both have cash coverage limits of $250,000 per account, and most - but not all - brokerages are members of the SIPC. It comes with SIPC coverage," Ahmed says, referring to the Securities Investor Protection Corp. It does not come with FDIC coverage on its own. "A brokerage account is an investment account. They're not covered by the FDIC while they're on their way to the bank. "Make sure, on account opening, that you're looking at what you're selecting," Centeno says.Īhmed adds that sweep account dollars can only be FDIC-insured if and when they're deposited into an FDIC-insured account at a partner bank. That means the government will reimburse account holders up to $250,000 in the event of a bank failure.īut some brokerages don't sweep funds into FDIC-insured accounts, and some offer a choice between insured and uninsured accounts. Related: 'Cash is the cool kid on the block': High-yield savings accounts, Treasury bills, money market funds, and CDs - here's where your cash can earn up to 4.5%Ĭhristine Centeno, a certified financial planner and the founder of Simplicity Wealth Management in Richmond, Virginia, says that some brokerages sweep uninvested cash into Federal Deposit Insurance Corp.-insured accounts. ![]() "Some are yielding as high as 4%, but brokerage cash accounts seldom pay that high," he says. "With the recent implosion of Silicon Valley Bank, First Republic and so forth, money market accounts have suddenly become super hot," Ahmed says. ![]() But according to Kashif Ahmed, a professor of finance at Suffolk University in Boston, non-money-market sweep accounts typically pay a lot less than comparable savings accounts. Some of these interest rates are competitive with those paid by high-yield savings accounts. But recently, some brokerages have launched money market- and CD-linked sweep accounts that yield anywhere from 1.5% to 5.1% per year. What is the interest rate in a sweep account?įrom the Great Recession until early 2022, sweep account yields were negligible, and many accounts still yield less than 1% a year. With that in mind, some investors might be wondering if it's a good idea to keep their savings in their brokerage's sweep account. Today, some brokerage accounts pay more than 4% per year in interest on uninvested cash. Many brokerages keep uninvested cash in "sweep accounts" that automatically transfer, or "sweep," the cash into interest-earning accounts at banks they work with. But it also increases the yields paid by bonds, certificates of deposit, and even brokerage accounts. That makes mortgages, credit cards and other types of debt more expensive. The Federal Reserve has increased its benchmark interest rate nine times since the start of 2022. ![]() NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. The investing information provided on this page is for educational purposes only. This article is reprinted by permission from NerdWallet. Some sweep accounts offer high yields and bank-like features, but check the fine print. ![]()
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