Tuesday, April 11, 2006

Sweep Account Rates---Find out What Ameritrade Pays!

Check the Sweep Account Rate
Consolidating my last errant Roth IRA account and writing the last post about brokerage sweep accounts got me thinking about investigating just what Ameritrade was paying these days. (A sweep account is a brokerage account whose cash balance is automatically transferred into an interest-bearing investment, such as a money market fund. )

It didn't matter much until now, because I only had .89 cents in as cash. After redeeming the MetLife CD and adding it to my brokerage Roth, I'll have more cash waiting to be swept while I research my next investments.

I crawled all over Ameritrade's site, but they're not revealing their rate easily. I had to resort to online chat. Here's the transcript (I'm Tessa):

Please wait for a site operator to respond.
You are now chatting with 'Becky'
Becky: Hello. How may I assist you?
Tessa: Hi Becky - I'm thinking about opening my Roth with Ameritrade. Can you tell me your sweep account rates?
Becky: The current Primary Class Money Market rate is 3.72%.
Tessa: Is that the default option? Are there other options?
Becky: Our money markets are offered to our clients through the Reserve and if you would like to check on the additional money markets they offer you may go to
www.ther.com.
Tessa: So all the ones at
www.ther.com are options for a sweep account?
Becky: That is correct.
Tessa: Ok, thank you so much for the assistance!
Becky: There are about 17 different money markets that the Reserve offers to our clients.
Becky: Thank you for choosing Ameritrade. Have a great day

Not too bad, but don't want to leave the cash too long. Next, I"ll investigate the options at The Reserve.

Ameritrade seems to only offer sweep accounts on their IRAs:

IRA clients can choose to automatically transfer money between an Ameritrade brokerage account and a dividend-earning money market fund, also called a "sweep account." Money market accounts are held by The Reserve Funds and are separate from an Ameritrade account.
Each day, after trades are settled, cash is automatically moved into the money market fund you choose during the enrollment process. Cash is also automatically transferred back into your Ameritrade account to cover brokerage transactions
Cash balances can be swept into Money Market Funds
Also took a look at some other information about sweep accounts:
From Bankrate: What to look for in a sweep account

Yields and fees are important criteria in selecting a sweep account.
Robert McLeod, a finance professor at the University of Alabama, says if the prospectus makes your eyes glaze over, shop for the money market fund on a fee basis. Ask what the net yield is because it encompasses fees. Money market funds are mutual funds and are not backed by the FDIC. Nevertheless, they're usually very safe.

"The yield isn't guaranteed, it's definitely a floating rate. But you can look at it from a point of time comparison. Look at the options available today and the current quoted rate. Or, you can look at the average return over the last year. It can give you a feel for how they're doing."
Yields among money market funds can vary widely -- from as low as 3 percent to about 6.5 percent. Lee says the rate will be determined by a couple of things: fees and how aggressively the fund is managed.

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