In the wake of the Fed's rate cut last week, brokerage firms again cut sweep rates, led by the highest-yielding brokerage Fidelity. After shocking the market by hiking rates following the Fed's July 31 rate cut, Fidelity has just lowered its rates across the board by 0.13%. Fidelity dropped its sweep rates from 1.07% to 0.94% on all tiers, and they're not alone, Fin-tech firms also dropped rates. Betterment's rate currently sits at 2.21%, a 0.23% drop from its early August rate of 2.44%, and Wealthfront has also dropped down from a rate of 2.32% in early August to 2.07%. (Thanks to those who attended our European Money Fund Symposium in Dublin, Ireland this week! Safe travels home, watch for coverage in our next MFI newsletter, and we hope to see you next year in Paris!)
Our latest Brokerage Sweep Intelligence publication shows that three brokerages out of 11 cut sweep rates in the latest week. E*Trade, Fidelity and Merrill Lynch all lowered rates on some tiers. E*Trade and Fidelity cut rates across the board while Merrill Lynch only lowered their yields on the highest-balance tiers.
E*Trade cut rates across all tiers -- their $100K balance dropped from 0.08% to 0.05%. Rates below their $100K balance dropped by 0.02% while rates above $250K dropped by 0.05%. Fidelity trimmed its rates by 0.13% across the board; their $100K balance tier now pays 0.94%. Merrill Lynch cut its rates for balances under $250K to 0.08% from 0.10% (they cut rates on all higher tiers too).
Our Crane Brokerage Sweep Index, an average of the 11 largest brokerage firms' "sweep" rates, is currently showing a rate of 0.24% for balances under $100K, down 1 bps from 0.25% last week. The average FDIC sweep rate is now 0.24% for balances of $100K to under $250K, 0.29% for balances under of $250K to under $500K, 0.33% for balances of $500K to under $1 million, 0.51% for balances of $1 million to under $5 million and 0.62% for balances over $5 million.
While Fidelity lowered rates, it is still holds the highest FDIC-insured sweep rates with a yield of 0.94% as of Sept. 20. (Note: This is comparing the FDIC sweeps; Fidelity also has an even higher yielding money fund sweep for new accounts.) RW Baird occupies the No. 2 spot in the weekly survey, paying out 0.57% on its $100K tier. Raymond James ranked third with rates of 0.25% at the $100K tier, followed by Schwab, with a 0.18% rate. Wells Fargo was fifth, yielding 0.17% on balances of $100K, with UBS and Ameriprise in sixth yielding 0.15%. Morgan Stanley offers 0.10%, while Ameritrade follows with 0.07%. Merrill and E*Trade ranked last with rates of just 0.05%.
In related news, Bankrate published, "5 ways to use you brokerage like a savings account." They write, "As brokerage accounts and bank accounts begin to look more alike, savers can often do many of the same things in each account. In brokerage accounts, not only can you invest in stocks, bonds and funds, you can often use the account as an omnibus financial account. In other words, you can typically write checks and pay bills with your account, often while collecting interest too."
The article continues, "Savers can stash their cash in a brokerage and rack up interest in a money market fund. Typically brokerages sweep any excess cash into a basic money market fund [sic], allowing you to collect some extra coin. For example, TD Ameritrade offers 0.04 percent on balances up to $5,000, ranging up to 0.43 percent on much higher amounts.... If you want to step up to a better deal, you should look at Interactive Brokers, which offers a rate that's more competitive with those at top banks."
Bankrate says, "If you want to get your whole account balance working at an even higher rate, then you might consider buying an exchange-traded fund (ETF)... ETFs offer a yield that's in line with short-term interest rates, and the bonds in the fund are short-term, typically less than a year in duration.... If you're interested in this kind of investment, you can purchase it just as you would a stock or other security, by placing an order with your broker using the fund's ticker symbol."
The piece tells us, "Another way is buying a money market mutual fund backed by bonds of the federal government.... This kind of money market mutual fund invests in very short-term bonds of the federal government, typically with an average maturity of 30 to 60 days. So the fund tracks short-term rates, and as they rise and fall, the fund's yield will change as well.... One example of this money market mutual fund is the Vanguard Federal Money Market Fund (VMFXX). As of early September 2019, it offered a yield of 2.06 percent, and the average maturity of a holding was just 34 days."
It adds, "If you're looking for a high-yield savings option from within your brokerage, consider turning to a CD.... A brokered CD is like a bank CD in that it pays a contractually guaranteed rate of interest.... Brokered CDs can be purchased at new issue through an online brokerage, and will usually have a small commission charge. They're typically available with a minimum investment of $1,000 and are available in $1,000 increments.... If you need to close the CD for some reason, you'll have to sell it into the market, like you would with a bond or stock."
Finally, Bankrate writes, "If you already have a robo-adviser account or are looking for a high-yield cash management account, then turning to a robo-adviser could be a great option.... Robo-advisers Wealthfront and Betterment are now offering interest rates that are competitive with the best online banks.... A robo-adviser is an excellent choice for cash savings."
Investment News also mentions robo-advisors in, "Wealthfront cash accounts up assets to $20B." They say, "New products, including high-yielding savings accounts, have helped Wealthfront double its assets to $20 billion in the past eight months, the robo-advisor said last Monday."
The article adds, "Fintech expert Lex Sokolin said he isn't surprised by Wealthfront's growth.... That interest rate is the cost of customer acquisition. Banks don't like going this high because it spoils the whole industry, but for fintechs it is just another growth hack."
