Brokerage Cash Sweeps: Are You Earning a Fraction of What Your Cash Could Earn?
Money waiting in a brokerage account doesn't sit still. It's swept somewhere, and the default often pays the firm more than it pays you. Here's how to find where your cash goes, what it earns and how to move it.
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📐 Figures verified Sep 27, 2026 against the SEC's cash sweep investor bulletins and its January 17, 2025 enforcement release, and the Federal Reserve's September 16 statement and implementation note. We don't quote any firm's sweep rate; rates change often, so check your own statement. How we check numbers →
Uninvested cash in a brokerage account is swept into a bank deposit or a money market fund, and bank sweeps often pay less. With the Fed's target range at 3.75%–4.00%, money in a low-rate sweep can give up most of what cash earns. Check your sweep rate, and move cash you don't need right away into a money market fund or Treasury bills.
Numbers That Matter
| Figure | Amount | Source | Verified |
|---|---|---|---|
| Federal funds target range | 3.75%–4.00% since Sep 17, 2026 | FOMC statement | Sep 27, 2026 |
| Interest the Fed pays banks on reserves | 3.90% | Fed implementation note | Sep 27, 2026 |
| SOFR (overnight Treasury-backed lending) | 3.88% on Sep 24, 2026 | NY Fed via FRED | Sep 27, 2026 |
| FDIC insurance on bank sweep deposits | $250,000 per customer at each program bank | SEC Investor Bulletin | Sep 27, 2026 |
| Money market fund sweeps | Not FDIC insured; SIPC protection if the firm fails, not against investment losses | SEC Investor Bulletin | Sep 27, 2026 |
| Bank sweeps vs money market fund sweeps | Bank sweeps often pay less interest | SEC Investor Bulletin | Sep 27, 2026 |
| SEC cash sweep penalties, Jan 17, 2025 | $60 million combined, two Wells Fargo advisory units and Merrill Lynch | SEC press release 2025-16 | Sep 27, 2026 |
Where Your Cash Actually Goes
When you sell a stock, deposit money or collect a dividend, the cash doesn't sit idle in your account. The firm sweeps it to one of three places, and it usually picks the default for you:
- A bank sweep: the cash moves into deposit accounts at one or more banks, often affiliated with the firm. It is FDIC insured up to $250,000 per customer at each program bank, and the firm sets the rate.
- A money market fund sweep: the cash buys shares of a money market fund, whose yield floats with short-term market rates. It is a security, not a deposit, so SIPC rather than the FDIC protects it if the firm fails.
- A free credit balance: the cash stays on the firm's books. It may earn little or nothing and falls under SIPC protection.
Many firms let you change the default, and some offer a money market fund as the account's core or settlement position. The setting is usually in the account's cash or sweep options.
Why the Default Often Pays So Little
Banks can earn 3.90% on reserves parked at the Federal Reserve and more by lending. A sweep that pays you a fraction of that leaves the difference with the firm or its bank, and that spread grew into a large profit source when rates rose. The SEC's investor bulletin puts it plainly: bank sweep programs often pay less interest than money market fund sweeps.
In January 2025 the SEC fined two Wells Fargo advisory units and Merrill Lynch a combined $60 million over their sweep programs. According to the SEC's orders, the firms offered bank sweeps as the only option for most advisory clients, benefited significantly from that cash, and lacked policies to weigh clients' best interests when choosing sweep options as rates rose. The firms settled without admitting or denying the findings.
Check What Your Cash Is Earning
- Find the sweep on your statement. Look for the cash, core position or sweep section and note the product name and the rate.
- Check for tiers. Many bank sweeps pay more on larger balances, so a small balance may earn the lowest rate.
- Compare. Money market funds publish a 7-day yield, and Treasury bill yields are public. Short-term market rates sit near the fed funds range, with SOFR at 3.88% on September 24.
- Put a dollar figure on the gap. Multiply your cash by the difference in rates. That is what the default costs you a year.
Your Options for Cash
| Option | Protection | Yield | Good to know |
|---|---|---|---|
| Bank sweep | FDIC, up to $250,000 per program bank | Set by the firm; often low | Fine for small balances you'll invest soon |
| Money market fund (sweep or bought) | SIPC if the firm fails; not FDIC | Floats with short-term rates | Check the fund's expense ratio |
| Treasury bills | Backed by the U.S. government | Set at auction | Interest is exempt from state and local income tax |
| Brokered CDs | FDIC at the issuing bank | Fixed for the term | Selling early means selling at the market price |
| High-yield savings account | FDIC | Set by the bank | Transfers to your brokerage take a day or more |
Interest from sweeps, money market funds and CDs is taxed as ordinary income. Funds that hold mostly Treasury securities can pass a state tax exemption through on that income in many states, which matters most in high-tax states.
If You Pay an Advisory Fee
The SEC noted that advisory clients often pay advisory fees on the cash held in these accounts. A 1% fee on cash that earns 0.40% loses money every year. Ask your adviser two questions: is cash included in the balance you bill on, and what does the sweep pay? If the answers are "yes" and "very little," ask what the plan is for that cash.
Worked Example: A Year in the Default Sweep
- The cash: $60,000 from a stock sale sits in the default bank sweep for a year.
- In the sweep at an illustrative 0.40%, it earns $240.
- In a government money market fund at an illustrative 3.70%, a little under SOFR's 3.88% on September 24, it earns $2,220. The gap is $1,980 a year before tax.
- After federal tax at 22%, that is $1,731.60 against $187.20: still $1,544.40 ahead.
- With a 1% advisory fee on the cash: $600 a year, so the sweep leaves the Patels $360 behind before tax.
Rates are illustrative, not any firm's quote; fund yields change daily and funds charge expenses. The Patel account is an illustration.
Decision Rules
If this, then that
- If you hold more than a few thousand dollars in cash for more than a month → check the sweep rate, and move the cash if it earns far less than money market funds.
- If you pay an advisory fee → ask whether cash is billed and what the sweep pays.
- If you want FDIC coverage above $250,000 → count every program bank, plus any accounts you already hold at those banks.
- If you live in a high-tax state → compare Treasury bills and Treasury money market funds after state tax.
- If you need the cash within days → a sweep or money market fund is fine; lock up only money you won't need.
Mistakes to avoid
- Assuming cash in a brokerage account earns what the Fed pays.
- Leaving a big sale's proceeds in the default sweep for months.
- Ignoring tiers that pay small balances the least.
- Forgetting that money market funds aren't FDIC insured.
- Chasing a yield without checking the fund's expenses.
Related: high-yield savings accounts covers the bank side of cash; rate benchmarks explained shows what drives short-term yields; the Fed's September hike explains what moved; and our brokerage comparison helps when you pick a firm. More guides are in the Banking & Savings hub.