Maximize the Benefits of Your Sweep Account
In today’s financial landscape, cash is no longer considered trash. With the potential to earn 5 percent a year, cash has become a valuable asset that should not be overlooked. One way to ensure that your uninvested cash is working for you is by maximizing the benefits of your brokerage sweep account.
A brokerage sweep account, also known as a core or settlement account, serves as a temporary holding place for your cash. When you sell a security, the proceeds are automatically deposited into the sweep account, and when you buy a security, the cash in the account is used to pay for the trade. It’s a seamless process that happens behind the scenes.
However, not all sweep accounts are created equal. Some brokerage firms park your cash in accounts with good yields, while others settle for less-than-ideal options. It’s crucial to understand the potential of your sweep account and consider alternatives if it’s not earning a competitive yield.
If your brokerage firm offers a government money market fund as its default sweep account, you’re likely in good hands. These funds typically provide attractive yields and are backed by the stability of government securities. In such cases, there’s no need to worry about your settlement account yield or make any changes.
But if your brokerage account cash isn’t earning 4 percent or better, it may be worth exploring other options. Peter Crane, president of money-fund-tracker Crane Data, advises considering factors beyond yield when deciding where to hold your idle cash. Factors such as how soon you plan to use the money and the amount you have should also be taken into account.
Some brokerage firms allow you to choose a different default sweep account. This could be a bank account or a government-debt or muni-bond money market mutual fund. If your firm doesn’t offer this flexibility or if you’re dissatisfied with its default option, you can take matters into your own hands by moving your cash to a competitive money market fund.
Accessibility is a crucial consideration when determining where to hold your cash. If you anticipate needing immediate access to your funds in the event of a market downturn, it’s best to keep them readily available in your brokerage account, even if that means settling for a lower yield. Missing out on a buying opportunity due to lack of accessibility could be costly in the long run.
However, the decision to prioritize accessibility should be balanced with the amount of cash you’re holding and your intended investment timeline. If you have a significant sum of money and don’t plan on investing it all in the near future, it may be worthwhile to shift a portion of the cash to a higher-yielding money fund.
Ultimately, maximizing the benefits of your sweep account requires careful consideration of various factors. The yield is certainly important, but it’s not the only factor to consider. Accessibility, the amount of cash you have, and your investment timeline should also be taken into account when making decisions about where to hold your idle funds.
In an ever-changing financial landscape, it’s crucial to ensure that your cash is working for you. By taking the time to evaluate and potentially make changes to your sweep account, you can make the most of your uninvested cash and maximize its earning potential.
Disclaimer: The views and opinions expressed in this article are those of the author and should not be construed as financial advice. It is important to consult with a qualified financial professional before making any investment decisions.
