These days, with many of us using online discount brokers, it takes some legwork to make the most from our money.
I have cash sitting around in my account all the time. (I’m never “fully” invested.) But that cash isn’t doing much in the way of earning any return.
After all, my broker is like my bank: I get around a tenth of a percent when it comes to cash returns.
With the Fed raising interest rates, it’s just not acceptable to be earning such a pittance on cash balances.
It’s time to end that.
Call your broker right now and find out how much your cash is earning. Chances are it’s less than 0.25%. That’s probably more than what your bank is giving you but not even close to what you could be getting.
The other day I was looking through my statements when I noticed a big discrepancy between the two brokers I use, Fidelity and TD Ameritrade.
TD Ameritrade was paying me next to nothing on my cash balances, while Fidelity was paying me 1.25%. That didn’t sit well with me at all.
I called my TD Ameritrade representative and asked what types of money market products they offered. Lo and behold, I “qualified” for the TD Money Market Portfolio Select Class, which would pay me 1.24% on the cash I have sitting around at any time.
This is called a cash sweep account. Money that is moving through the account – at any time, for any purpose – is swept into the account and earns interest. When you do a trade, the cash comes out of that same account. It’s a no-brainer.
Of course, as a money market account, it doesn’t have the same guarantees as a pure FDIC-insured savings account. But I can count on one hand the number of times a money market account’s principal value has fallen.
And right now, with rates moving up, companies like TD Ameritrade are investing the funds in short-term, high-quality securities… and still earning a nice return between what they are making and what they are paying you.
Also, if you have cash sitting in a non-IRA account at your broker, have them invest it in a municipal money market account. That way you’re not dealing with the taxes on the interest you earn. Of course, always check with your accountant before making a tax-related decision since rules vary by state.
The point is that you must take it upon yourself to get these rates and investments. Your broker is not going to call you up and let you know about them. He’d much rather pay you nothing (like the bank)… because that means more money in his pocket.
It’s been close to a decade since you could make decent money in your bank account or brokerage account.
But now, we are looking at a few years of rising rates.
Of course, they’re not going to go bonkers, as they did in the ’80s – when you could lock in a CD paying 10% – or even the ’90s, when you could get 6%. However, you can still get more today than you could just a couple of years ago.
You’re just a couple of clicks or a phone call away from earning some real interest on your cash!