I recently wrote about combining the Merrill Edge brokerage account with Preferred Rewards can get you higher credit card rewards, free stock trades, and cash bonuses for moving investments over. However, I didn’t say much about the interest rates on their cash sweep. That’s because their cash sweep options are horrible, and I always manually sweep my cash out of there. (First to my Bank of America checking via instant transfer, then out to a high interest savings account.)

After a nice conversation with a Merrill Edge rep, I will try to summarize all of the options available if you do want to keep your cash there.

Current rate sheet. You can always check current interest rates by scrolling to the bottom of any Merrill Edge page and clicking on the blue link “Deposit Account & Money Fund Rates”. Right now it links to this PDF.

Default cash sweep. Your default cash sweep interest rate is the one for “Merrill Lynch Bank Deposit Program – Tier 1 (0.14% APY. This is a FDIC-insured cash sweep. The bad news is that you can’t change it to anything else right now. The good news is that there are some other options available if you are willing to do a bit of work.

Preferred Deposit. The first page of the rate PDF only includes FDIC-insured options. You’ll note the highest rate is something called “Preferred Deposit”. As of 2/15/19, it is a much more competitive 2.07% APY. In order to use this option, you must open it with at least $100,000 in cash. However, once you establish that $100,000 position, you can then go below that amount while still maintaining future access (subsequent transactions have a $1,000 minimum). However, this is not a sweep (nothing goes in or out automatically). To move money, you must put in a buy/sell order over the phone, with same day settlement if the trade is placed by 5pm Eastern Time. No online orders.

Money market mutual funds. If you scroll down to the second page of the rate PDF, you will find a list of money market mutual funds. These are not FDIC-insured, but they are still regulated by the SEC and required to hold very safe investments of a very short duration.

Merrill Edge recently made it possible to place trades on money market mutual funds online. You must select “Mutual Funds” from the “Trade” Tab drop down menu, and then enter the fund symbol you are interested in. Many of these are institutional class shares, which means a $100,000 initial minimum investment. Here are the ones that aren’t:

  • Blackrock Liquidity Funds FedFund Cash Reserve Class (BFRXX). $1 initial minimum investment. 7-day yield of 1.89% as of 2/15/19.
  • Blackrock Liquidity Funds T Fund Cash Management Class (BPTXX). $5,000 initial minimum investment. 7-day yield of 1.76% as of 2/15/19.

Again, these money market mutual funds can’t be set as an automatic sweep; you must manually move money in and out of the product. This also means that if you want to for example buy new shares of stock, you would need to first put in an order to sell your money market mutual fund shares into cash (in order to have the funds available to buy that stock). The system won’t be able to automatically sell your fund. Watch out if you have a margin account.

Buying an outside ETF. If you have a Preferred Rewards relationship and thus free trades each month, you can also use those free trades to buy an ETF that is close to cash (ultra-short duration, high-quality bonds). These will not be FDIC-insured and carry a bit of duration risk, but if your ETF holds T-Bills then those are also fully backed by the US government. Here are a few ideas (with rates as of 2/19/19):

  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.30% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 2.21 SEC yield. GBIL appears to have a slightly longer average maturity than BIL.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.91% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 3.03% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Bottom line. Merrill Edge has a default cash sweep option with a very low interest rate. If you have significant assets with them, you might want to call your rep and tell them your opinion and try to create a change. Otherwise, I detail your available options if you want to keep your cash at Merrill Edge and earn a much higher interest rate.

“The editorial content here is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone.”

Merrill Edge Brokerage: Higher Interest Rate Options on Cash Sweep from My Money Blog.

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