Cash Sweep Program at TD Ameritrade
TD Ameritrade clients have multiple choices for handling free cash balances. It’s important to be aware of these differences as the rates of return can vary significantly.
Insured Deposit Account
The first cash option we’re going to look at is the Insured Deposit Account (IDA). This is a sweep system that moves idle cash from a brokerage account to a bank with FDIC insurance. Thus, the uninvested cash is protected by the FDIC rather than SIPC.
When an account’s available cash balance is moved to a bank, the transfer doesn’t create a separate deposit account. Instead, the bank simply holds the money while it is available for trading inside the TD Ameritrade account.
Because TD Ameritrade uses multiple banks for the IDA program, it’s possible to get a larger amount of insurance than the standard $250,000 FDIC limit. Currently, TD Ameritrade uses a variety of financial institutions, including Wells Fargo, Citibank, and affiliates of Charles Schwab Bank as its partner banks. Any existing deposits with these banks could reduce the maximum limit of insurance available through the IDA program.
The APY on TD Ameritrade’s bank-sweep program is currently 0.3% across all balance levels.
TD Ameritrade also operates an IDA Plus program. This is for clients with over a million dollars in assets. However, the Plus program pays the same interest rate on uninvested cash.
SIPC Protection
TD Ameritrade offers an alternative to the IDA program. This option also comes with insurance. However, it is through SIPC rather than the FDIC. SIPC is funded by member broker-dealers rather than the U.S. government. The amount of insurance is the same: $250,000 per separate capacity. What exactly qualifies as a separate capacity could vary somewhat between the two insurance providers.
Cash inside a brokerage account at TD Ameritrade that has elected SIPC coverage won’t be swept into a bank. It will remain in the securities account earning interest. Currently, that rate is the same rate that the FDIC program pays: 30 basis points annually.
The one advantage of the SIPC program is that TD Ameritrade has a supplemental insurance policy to backstop the SIPC policy if it is exhausted. This auxiliary policy is through London insurers and is good for $2 million of cash. Moreover, a cash balance at this level will still be earning the standard APY of 0.3%.
PTD (pattern day trading) accounts can only use the SIPC option for idle cash.
Open TD Ameritrade Account
Open TD Ameritrade Account
TD Ameritrade Money Market Funds
Investors who want more than an annual return of 0.3% will find it a money market mutual fund. These funds are easily accessible inside a TD Ameritrade account thanks to the broker’s user-friendly website. To find the money market search tool, hover over the Research & Ideas tab in the top of the website and then select Families from the Mutual Funds sub-category.
On the next page, there will be a row of tabs at the top of the site. Click on Money Market Funds. This will produce a list of every money market mutual fund available to TD Ameritrade customers. Currently, there are 17 funds on the list. Every one of them is a Schwab fund with at least a billion dollars in assets.
Some of the Schwab funds invest in municipal bonds, which means there may be tax advantages with these funds in certain situations. They tend to deliver lower returns, however. For example, look at these two funds and their yields:
Schwab California Municipal Money Fund™ (SWKXX) - Investor Shares: 1.23%
Schwab Municipal Money Fund™ (SWOXX) - Ultra Shares: 1.46%
And compare them to the fully taxable money market funds:
Schwab Treasury Obligations Money Fund™ Ultra Shares (SCOXX): 2.13%
Schwab Value Advantage Money Fund® Investor Shares (SWVXX): 2.21%
A very clear difference on a pre-tax basis.
Investment minimums vary considerably among the money market funds. Some are $0, while others have a $1 million minimum initial purchase requirement. None of the money market funds have a load, transaction fee, or minimum hold period.
Selecting a TD Ameritrade Cash Option
The IDA system is the default core position inside a TD Ameritrade account. This can easily be changed to SIPC coverage on the website. To do this, hover over the Client Services tab in the top menu and select My Profile from the list of choices in the drop-down menu. On the next page, select the General tab. Next, find the edit link next to “cash sweep” under the Elections & routing section. This will deliver an online tool to switch to SIPC coverage.
Moving cash into a money market mutual fund follows the same procedure as buying a regular mutual fund. Thus, a money market fund won’t really be a core position. Instead, it will take money out of an account’s core position (either the SIPC or FDIC setup) and invest it into the money market fund.
To make an investment, head over to the list of money market funds we have already seen and hover over a ticker symbol. A pop-out window will appear with trade buttons. These also appear on the fund’s profile, where more detailed information on the fund will be found.
Open TD Ameritrade Account
Open TD Ameritrade Account
Updated on 10/6/2022.
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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