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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteBrokerages can benefit from uninvested cash, but the money does not always go to the same place. It may remain as a credit balance owed by the brokerage, move to a bank deposit account, or buy shares in a money market mutual fund. Each route has different economics, yields, liquidity terms, and protections.
Where brokerage cash goes
FINRA defines a sweep program as an automatic transfer of free credit balances to either a money market mutual fund or an FDIC-insured bank account. The destination determines who holds or owes the money and how the customer may earn a return. A brokerage account’s “cash” label alone does not tell you which arrangement applies.
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Free credit balance
A free credit balance remains recorded in the securities account. Depending on the account feature, it may be a direct obligation of the brokerage, which decides whether to pay interest and at what rate. The firm may earn income from the use of the balance or related assets; the precise arrangement depends on its terms. See FINRA’s interpretation of SEA Rule 15c3-3 and the account’s own disclosure.
Bank deposit sweep
The brokerage automatically transfers available cash to deposit accounts at one or more program banks, which may be affiliated with the brokerage. Banks use deposits in their businesses, including lending and investment. Their economics generally reflect the income from those activities minus deposit interest and other costs. The brokerage or an affiliate may separately receive fees or other benefits under the program.
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Money market fund sweep
The cash buys shares in a money market mutual fund. The customer’s return comes from the fund’s investment income after its fees and expenses. A broker or affiliate may earn management or distribution fees, depending on the arrangement. Fund shares are investments, not bank deposits, and are not FDIC-insured.
How the firms can earn money
There is no single “broker keeps the interest” model. In a bank sweep, the bank can earn a spread between income from loans and investments funded by deposits and the interest and other costs it pays. The broker may also receive program compensation. With a free credit balance, the brokerage may set the interest rate it pays and earn income related to its use of the balance. With a fund sweep, fund returns accrue to shareholders after fund expenses, while a broker or affiliate may earn fees for managing or distributing the fund.
These roles can overlap within one company group, but they remain distinct. For example, Charles Schwab’s cash-features disclosure says affiliated program banks’ income from deposit activities is expected to exceed fees Schwab and its affiliates earn from managing and distributing Schwab Sweep Money Funds or paying interest under the Schwab One Interest Feature. That statement describes Schwab’s program, not every brokerage’s economics. Read Schwab’s Cash Features Program Disclosure Statement for its terms.
Why the customer’s rate may be lower than other returns
The rate on a brokerage cash feature is not necessarily the return earned by a bank on assets funded by deposits, nor is it the yield of a money market fund. Banks pay deposit interest and earn income on loans and investments; brokers may set the rate on free credit balances; fund yields depend on portfolio income and expenses. Program fees and the specific account terms also matter.
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FINRA has reported that differences among money market fund, bank sweep, and free credit balance rates have sometimes reached 5 percentage points in higher-rate environments. FINRA’s investor page does not attach a publication year to that figure, so it is a historical comparison, not a current rate gap or a prediction of what any account will pay. Check the current rate or yield for your specific account rather than relying on a general comparison.
Compare the cash choices in your account
Use the brokerage’s current cash-features disclosure and your account statement to identify the arrangement. The key distinctions are:
| Feature | Free credit balance | Bank deposit sweep | Money market fund sweep |
|---|---|---|---|
| Where the money goes | Remains as a credit balance in the securities account | Moves to deposit accounts at program banks | Buys shares in a money market mutual fund |
| How a return is determined | The brokerage may set the interest rate | The bank sets deposit interest; the customer rate is distinct from the bank’s income on loans and investments | Fund portfolio income, less fund fees and expenses, determines returns |
| Potential firm economics | The brokerage may earn income related to use of the balance or assets | The bank may earn a spread; the brokerage or affiliate may receive program fees or other benefits | A broker or affiliate may earn management or distribution fees |
| Deposit or investment? | Credit balance owed by the brokerage, subject to account terms | Bank deposit at participating program bank(s) | Investment security: fund shares |
| Specific rate, fees, and redemption terms | Not stated uniformly; consult the brokerage’s current disclosure | Not stated uniformly; consult the brokerage’s current disclosure | Not stated uniformly; consult the fund and brokerage’s current disclosure |
Before choosing or relying on a cash feature, check:
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- Default destination: Confirm whether the balance is a free credit balance, bank deposit, or fund share.
- Rate methodology and tiers: Find the current rate or yield, how it is set, and whether different balances receive different rates. Schwab, for example, says the rate for its Schwab One Interest Feature is set at Schwab’s discretion.
- Program-bank relationships and compensation: Identify the banks receiving deposits, whether they are affiliated with the broker, and how the broker or affiliates may be compensated.
- Available alternatives: Ask whether you can select a different cash feature and how to change it. SEC investor guidance says that when a broker offers choices, it must agree to the customer’s selected option; actual choices depend on the account.
- Liquidity and costs: Check transfer timing and, for a fund, fees, risks, and redemption terms. SEC guidance notes that fund redemptions remain subject to the fund’s terms and applicable law.
- Protection: Determine whether FDIC insurance or securities-account protections apply to the particular holding; they are not interchangeable.
For program terms and options, consult the SEC’s investor bulletin on brokerage cash sweep programs, as well as your firm’s current disclosure.
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What FDIC and SIPC protection mean here
Eligible deposits at participating FDIC-insured banks may receive FDIC insurance, subject to applicable conditions, limits, and ownership categories. The SEC investor bulletin describes coverage up to $250,000 per customer at each participating FDIC-insured bank, subject to those conditions and limits. That is coverage for eligible bank deposits, not a statement that the brokerage account itself is a bank account.
A money market fund share is not an FDIC-insured deposit. SIPC protection concerns eligible securities accounts and does not insure bank deposits, guarantee a fund’s value, or protect against investment losses. Check the applicable rules and account details rather than assuming one protection covers every form of brokerage cash. The SEC’s cash-sweep investor bulletin explains the distinction.
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