IBD on Brokerage Sweep Accounts
Yesterday, Investor's Business Daily wrote, "Which Brokerage Default Sweep Account Pays The Best Yield?" The article tells us, "Fidelity Investments made a big splash the past week by touting seven-day yields on its so-called cash sweep accounts, which the Boston-based firm ballyhooed were up to 10 to 47 times higher than various marquee name rivals. Neither the Fidelity accounts nor the yields were new. But Fidelity found many investors are unaware big differences exist among yields on default sweep accounts at various brokerages. Default sweep accounts are where your cash automatically goes to, unless you ask for a different option. The best sweep account rates chosen by brokerages by default as of Aug. 9 topped 2%, while some brokerages offered as little as 0.01%, according to Crane Data." They add, "And Fidelity has hammered at the fact some rival firms are defaulting customers into lower yielding accounts. Sure, you can get one of those firms' higher yielding alternative accounts -- but you've got to ask for it by phone or via clicks of your mouse." The piece quotes Kathleen Murphy, President of Fidelity's personal investing business, "I would not characterize (the information that Fidelity is making public) as a campaign. It's a way of doing business. We want to make sure investors better understand what industry practices are and the fact that they should get more money for their cash." IBD also quotes Peter Crane, President of Crane Data, "Brokerages have made a living picking up pennies that savers are too lazy to pick up for themselves." Also, the Wall Street Journal and Barron's.com write, "E*Trade CEO Resigns as Online Brokerages Fight for Revenue." It says, "Online brokers are fighting to keep revenue afloat amid multiple downward pressures. Trading revenue is under siege from intensifying price competition. And brokerages are contending with lower interest rates that reduce their net interest margins on assets and lending -- a major source of profit.... Fidelity Investments, meanwhile, is highlighting its relatively high yields on cash sweep accounts, ramping up the pressure on Charles Schwab (SCHW) and other discount brokers." For more, see our Aug. 19 News, "Cash Stories: Barron's Explains Brokerage Sweeps; Bloomberg on Assets;" our Aug. 13 News, "Cash of the Titans: Schwab vs. Fidelity; MF Yields Dip Below 2.0 Percent;" and our latest Brokerage Sweep Intelligence publication (ask for a sample).
