You Have to Keep Paying Attention

Money market funds could have earned us
000's more in interest this year.

At one time stockbrokers competed hard for our business by sweeping idle cash balances into a money-market fund, thereby allowing us to earn a competitive rate on short-term monies. The extreme low-rate environment (less than 0.5%) during the past ten years, however, has caused us to be inattentive to brokers' machinations.

One of our own brokers, Charles Schwab, and now Morgan Stanley, have shifted the cash sweep to much lower-yielding bank funds, some of which are affiliated with the brokers themselves: [bold added]

At Morgan Stanley, $6.3 billion of that cash is in a money-market mutual fund yielding 1.8%. On Aug. 13, the firm will shut that fund and sweep its clients’ idle cash into bank accounts that, after a transition period, could yield much less.

As Charles Schwab also did earlier this year, most major brokerages have shoved clients out of money-market funds and into lower yielding bank sweeps, thereby capturing much of the return on customers’ cash for themselves.

In a bank sweep, your brokerage automatically rakes together and deposits your spare cash in one or more banks. Banks hand the brokerage a hefty fee, and the brokerage hands you some crumbs. For any given investor, a few dollars from dividends or interest income don’t amount to much. Rolled together with idle cash from thousands of other investors, they can add up to millions.

Our current financial institutions provide us decent service for other products, so we won't switch. However, I'll have to resume doing something that I thought I wouldn't have to do any more--actively manage our cash balances.