The Most Insulting Slap of the Year
This slap might be the most annoying, no, the most insulting of the year. Get ready to be pissed about this one.
There are untold billions of dollars sitting in cash in brokerage accounts. And until recently, most of it was in money market accounts that didn’t pay a fortune but usually kept pace with short-term rates.
That was until now.
The Wall Street money pros have found another way to screw their clients out of a ton of money… And there’s very little chance you can figure out how they’re doing it.
That seems to be what they do best, isn’t it?
It’s called a bank sweep. Brokerages are sweeping the cash out of money market funds, sending them to banks and pocketing the return on your cash.
Essentially, your cash is moved to a bank, and the brokerage firm is paid for doing it. But despite the fact that short-term rates have moved from 1.1% to around 1.9% in the past year, the yields in these accounts have barely budged.
And this is legal!
And there’s more. Many of the brokerages are sweeping into banks that are owned by their firm. And these banks can offer the lowest rates possible.
Ameriprise pays about 0.13% to 0.14% on cash balances of less than $250,000. That’s of the 1.9% a bank account pays. The firm makes 10 times what it pays its customers.
Ninety-two percent of the $37.9 billion it swept in the first half of 2018 went to E-Trade Bank and E-Trade Savings Bank. But it paid only $4 million in interest.
Do the math. That’s 0.01%. Are you kidding me?
If you have $110,000 to $499,000 in cash with E-Trade, you now earn a whopping 0.15% on it. Thanks for nothing.
This is the future of cash holdings in brokerage accounts. And I guarantee you can’t find the specifics that inform you of it in the legal disclosures they provide.
This is nothing short of stealing. Make sure you know what you are earning and what you could make on your cash. And if your firm is sweeping cash, get your cash out of there and into someplace that doesn’t treat you like a moron.
God, do I hate the Wall Street machine.