Ally Invest Cash Sweep Options
If you have a brokerage account with Ally Invest, you have multiple choices for uninvested cash at your disposal. Here are the details:
First Choice: Ally FDIC Sweep
The default option for idle cash inside an Ally Invest account is the broker’s FDIC-sweep program. This will automatically move a free cash balance to program banks that are FDIC insured. This service is through Ally Invest’s clearing firm Apex Clearing Corp and not through Ally Invest itself. Apex uses several banks, including Ally Bank, BNY Mellon, Wintrust Bank, and BMO Harris Bank.
Because multiple banks are used in the program, it’s possible to gain more than the standard FDIC insurance limit of $250,000. This is because a brokerage account’s uninvested cash can be swept into multiple program banks. Each bank will be eligible for $250,000 in protection.
It’s also possible to have less than the standard $250,000 of insurance. This situation would occur if you already have deposits with the program bank. Say, for example, that you already have a CD worth $100,000 at Associated Bank, one of the program banks. In this case, you can only receive an additional $150,000 of FDIC insurance through Apex’s sweep program with Associated Bank.
The biggest downside of Ally Invest’s FDIC-sweep system is that it currently pays no interest. This is a notable disadvantage at a time when interest rates are high and increasing.
Second Choice: Ally SIPC Protection
Next up is SIPC insurance. This will leave the cash sitting in the brokerage account without investing or moving it. Currently, a free cash balance inside a brokerage account earns no interest, so there’s no financial interest in choosing SIPC over FDIC. The primary difference between the two is that the FDIC is funded by the U.S. government, while SIPC receives funding from member brokerage firms like Ally Invest.
As with the FDIC program, there is a maximum of $250,000 of insurance available through SIPC for uninvested cash.
With either SIPC or FDIC insurance, it’s possible to maximize the amount of insurance available by opening different account types. Insurance is based on ownership capacity in both cases, and this means a Roth IRA and an individual account, for example, both have separate insurance policies.
Third Choice: Ally Money Market Mutual Funds
Finally, we find something that pays interest. Ally Invest has 174 money market mutual funds available for purchase. These can be found using the broker’s mutual fund screener. It is on the website under the Quotes & Research tab.
Once the search tool is launched, click on the Money Market tile on the Asset Class search panel. It is there by default.
Among the results, we found SPAXX, the Fidelity Government Money Market Fund. The fund currently has a 7-day SEC yield of 2.50%, so obviously there’s more return potential out of this option. SPAXX has over $219 billion in assets, so it’s a very big fund. Like other money market funds, it tries to keep its NAV at an even $1.00, but this is not guaranteed.
Because a money market fund is considered a security, and not cash, it is protected by the SIPC as a security and is not eligible for FDIC insurance. As a security, it gets $500,000 worth of protection instead of SIPC’s guarantee on $250,000 of cash.
Selecting the Choices
When deposits come into an Ally Invest account, they receive SIPC protection until they are available for withdrawal. At that point, they are moved into program banks and become FDIC insured. The same is true with cash from unsettled trades. Until they settle, they are covered by the SIPC program. Once a sale settles, the cash will be moved to an FDIC-insured bank. There’s no way to avoid SIPC protection entirely at Ally Invest.
If you want to switch between SIPC and FDIC for settled cash, you’ll need to call Ally Invest. There is no way to change an account’s core position on the website or mobile app.
On an account’s balances page, it’s easy to see what insurance a free cash balance is currently receiving. On the website, hover over the My Accounts tab in the top menu. In the drop-down window, hover over Account Summary and then click on Balances.
In the balance details, any cash that is covered by the FDIC will be in the “Money Fund” line. SIPC coverage is represented by a “Cash” line.
It is not possible to sign up for automatic money market fund purchases inside an Ally Invest account. To move cash into one of these funds, you’ll have to make an actual purchase. Furthermore, because Ally doesn’t offer periodic mutual fund purchases, you’ll have to submit subsequent purchase orders each time to move cash into the fund in the future.
The primary downside of this third option is that Ally Invest charges a $9.95 transaction fee on every purchase or sale of any mutual fund without a load. This includes SPAXX and many other money market funds.
Final Choice: Linked Ally Bank Account
The final option for uninvested cash at Ally Invest is to move it to a linked Ally Bank account. The banking unit of Ally Financial offers several deposit types, including savings, checking, money market deposit account (this is different from the money market mutual fund discussed above), and certificates of deposit.
When one of these accounts is opened online using the same tax ID number the Ally Invest account has, it will be automatically linked to the brokerage account.
Ally Bank consistently has competitive rates on its deposit accounts. Its savings account currently has a 2.1% APY. Unlike the money market mutual fund, there is no management fee on this one.
It’s really easy to move money internally on Ally’s website. To do this, go back to the My Accounts tab on the website we have already seen. This time, select Transfer Funds and follow the prompts. Transfers can also be conducted on the mobile app.
Transfers between Ally accounts typically take 1 to 2 minutes. There are exceptions, however. A transfer from an automated or wealth management account to a bank account could take 3 to 5 business days due to the need to sell securities first.
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Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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