TD Ameritrade Cash Sweep Account Options
If you have money sitting in your TD Ameritrade brokerage account, there are several cash sweep vehicles available to you. The first is an FDIC-insured bank option. This is the default set up. If you don’t make any requests to the broker, your free cash balances will be swept to a program bank that has FDIC insurance. Typically, this is the broker’s parent company, TD Bank.
TD Ameritrade Cash Sweep Interest Rates
TD Ameritrade receives compensation for sending its customers’ cash to TD Bank, which is probably why it’s the default option. The sweep program does pay interest, but
currently it is only 0.01% for all balances. By comparison, Schwab’s FDIC-insured checking account currently pays slightly higher, but not impressive, 0.11% interest rate.
TD Ameritrade Cash Sweep Insurance
TD Ameritrade’s default sweep option is insured up to $250,000. This is the standard amount of protection from the FDIC, but other brokerage firms offer programs to increase it. Fidelity, for example, uses multiple program banks, a method that provides $1,250,000 of insurance.
The second free cash option available to TD Ameritrade clients is simply to leave cash balances in the brokerage account. This alternative comes with SIPC protection, which includes insurance on cash up to $250,000. The maximum amount of SIPC coverage is $500,000, including all securities in an account.
Other TD Ameritrade Cash Sweep Options
The second alternative also pays interest, but it is only 0.01% across all balance tiers. The broker tells its clients that this option should be used to prepare for making investments rather than earning interest.
TD Ameritrade has a supplemental private insurance policy from London insurers that adds additional protection to brokerage accounts beyond FDIC and SIPC coverage. It provides $149.5 million of protection for securities and $2 million in insurance for cash. However, there is an aggregate limit on the policy of $500 million. It seems odd to have such a high limit per customer, but such a low total that the insurance company would pay.
TD Ameritrade Money Market Fund Rates
The third and final option that TD Ameritrade offers its account holders is to move free cash balances to a money market mutual fund. These balances are insured neither by the FDIC, nor by SIPC, nor by anyone else; although SIPC does protect the number of shares. Money market funds attempt to maintain an NAV of $1 per share, but there have been failures in the past.
Currently, the default money market fund offered by TD Ameritrade is one managed by TD Asset Management USA Funds. It pays between 0.01% and 0.05%, depending on the
balance tier.
Final Thoughts
TD Ameritrade allows its clients to change their cash sweep choice at any time. The process may require liquidation of cash positions, which could incur the loss of a day’s interest or dividends. Funds held in the money market deposit account can be liquidated to satisfy any debits. These can be presented either through a Visa debit card, checks, ACH, or other method.
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Updated on 6/15/2017.
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