Holding cash in your brokerage account is sometimes unavoidable. Whether you’re waiting on additional 401(k) contributions in order to fund a new investment stake, or you’re simply waiting on the sidelines for a drawdown to reinvest, cash in your account is often viewed as a negative. Money that isn’t working is money that isn’t growing, especially considering some of the interest rates offered on savings accounts at your local banks.
Not all brokers sit on that idle cash though. If you’re worried about losing purchasing power due to a large cash position, you might want to consider a broker that puts that idle cash to work. And no, we aren’t talking about lending shares to be shorted.
The companies on this list will take that unused cash sitting in your account and put it in FDIC-insured accounts at participating banks. Known as a cash sweep, these brokers let you earn interest on your excess cash.
Quick Look: The Best Brokers that Pay Interest on Uninvested Cash
- Interactive Brokers – Open an account
- Charles Schwab – Open an account
- E-Trade – Open an account
- TD Ameritrade – Open an account
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Brokerage Accounts that Pay Interest on Cash Balances
The following companies all have some form of cash sweep program where the cash in your brokerage account will be deposited in an insured savings account. You can access it any time, including through ATMs if you use banking services with your brokerage account.
|Brokerage||Best For||Interest Rate||Open an Account|
||Up to 1.9%||Open an Account|
||Up to 0.70%||Open an Account|
||Up to 0.45%||Open an Account|
Up to 0.70%
|Open an Account|
1. Interactive Brokers
While Interactive Brokers may not be a household name, their interest offerings on idle cash are the best in the industry. Interactive Brokers uses a tiered system like other firms, but the interest paid is a blended rate based on both your cash balances and the net asset value of your brokerage account.
The benchmark rate used by Interactive Brokers is 1.9%. Now, before you go emptying your savings account, know that this 1.9% rate is only available to customers with balances over $100,000 in their accounts and with at least $10,000 of that balance in cash.
However, unlike the other brokers on this list, you don’t need to have a six-figure account to get paid. Let’s say you have a $50,000 account balance with $13,000 sitting in cash. Your cash interest rate would be 0.95%, which is half the benchmark rate. If you have an account balance of $40,000, you’ll get 0.76% interest, which is 40% of the benchmark rate.
Now, take your blended interest rate and apply it to every dollar in cash above that $10,000 threshold. In this instance, you have $3,000 of cash in your account earning interest at a rate of 0.95% (or a 0.219% rate for the entire $50,000).
It may sound complicated, but this is usually a good bargain for investors. It’s hard to not forget about the other brokers when accounts with $100,000 balances at Interactive Brokers can earn interest on par with CDs and high yield savings accounts.
2. Charles Schwab
Charles Schwab is one of the largest brokerage houses on the planet, holding over $3 trillion in assets. They boast some of the most cost-effective ETFs on the market and pay interest on uninvested cash sitting in your account. Rates like these may not seem like much, but Schwab offers a good amount compared to other major brokers.
To get the full 0.70% rate, you’ll need to have an account balance over $1,000,000. The rate is tiered, starting at 0.33% for accounts with at least a penny in them. Uninvested cash is sent out to Schwab-affiliated banks and insured by the FDIC up to $250,000.
E-Trade offers a cash balance program for uninvested funds, but you won’t get much from these offerings. The account balance threshold for the highest rate is lower than Schwab, but 0.45% for the highest tier is pretty underwhelming.
E-Trade has cash sweep options on a variety of accounts, including retirement vehicles. But these rates are simply too low to make much of an impact.
4. TD Ameritrade
Like Schwab, TD Ameritrade is one of largest asset managers in the world. But like E-Trade, their interest rates on uninvested cash leave a lot to be desired. Minimums start at only a penny, but the top tiered rate of 0.70% is only for accounts with balances over one million.
E-Trade has better offers for accounts with balances between $500,000 and $1,000,000, but TD Ameritrade has seven tiers compared to E-Trade’s five.
Other Tools for Getting Interest from Cash
While earning interest from your uninvested cash is a nice perk, it won’t be a significant amount, even if you’re using Interactive Brokers. If you’d like to earn interest risk-free, you’re better off using one of the following vehicles.
- Money market funds:Money market funds function in a similar manner as savings accounts, but with fewer restrictions. Most importantly, money market funds can invest capital in CDs and federal securities, which allows them to offer higher than normal interest rates.
- Certificates of deposit (CDs): Certificates of deposits work similarly to bonds. You’ll give the bank a certain amount of cash as a deposit which is promised to be returned later with interest. CDs come with many different lengths to maturity and deposits are FDIC-insured, but the money must remain with the bank until the CD reaches its maturity date.
- High-yield savings: Many new banks are introducing savings accounts with interest rates as high as 2%. This is especially true with online-only banks that don’t have the extra costs associated with physical branches. E-Trade’s banking wing currently offers a savings account yielding 2.1%.
It’s a nice touch to pay interest on customers’ uninvested cash balances, but these firms aren’t exactly emptying their pockets to return money to you. The rates offered by big firms like TD Ameritrade and E-Trade are poor, and even the cream of the crop Interactive Brokers maxes out at 1.9%.
CDs and high-yield savings accounts are a better bang for your buck than interest from idle cash, so be sure to consider your options if suddenly find yourself holding a lot of cash in your brokerage account. If you’re in the process of accumulating funds for a new investment, getting interest from your broker on the idle cash in your account is an ideal situation.