Forbes.com Takes Swipe at Sweeps
Forbes.com writes "A Risk-Free Way To Improve Your Portfolio Return." The contributed article says, "If you are like most investors, you probably have some extra cash sitting in your brokerage account. The cash may come from interest or dividends and may be considered temporary, it may be a result of a short-term asset allocation decisions, or it could be a strategic allocation to get exposure to fluctuating money market rates. Regardless of the amount, it's time to start paying attention to where your unused cash is held. It can be the easiest money you will ever make." The piece continues, "Any cash not invested in a purchased money market fund is likely being swept to an FDIC bank account, either at the bank arm of your brokerage firm or a "participating bank," if your brokerage firm is not affiliated with a bank. These "sweep" accounts are bank deposits, and come with certain benefits -- primarily FDIC insurance up to $250,000. Bank deposits, though, come with a cost-- interest rates well below other alternatives. The Federal Reserve has slowly raised interest rates over the last two years and is expected to continue to do so for the remainder of 2018 and into 2019.... Meanwhile, the interest rate for a bank checking account has not moved at all." It adds, "According to the FDIC, the National Rate on Non-Jumbo Deposits (less than $100,000) for checking accounts is 0.04%.... Unless you proactively take action, most brokerage firms will move your funds into a bank deposit. They will then invest the money in a different short-term instrument and pocket the return. You will get virtually nothing. They will not automatically move cash into a higher-yielding alternative."
