savers rethinking their cash options amid rising rates and recent bank failures shouldn’t overlook their brokerage “sweep” accounts many brokerage firms automatically sweep customers’ uninvested cash into bankdeposit vehicles that may come with federal deposit insurance coverage but offer yields that in many cases have remained stubbornly low even as the federal reserve aggressively hikes rates at morgan stanley ms  for example sweep rates start at 001 rising to 05 for cash of 5 million and above whereas the average money market mutual fund yields well over 4 money market funds do not come with fdic coverage but invest in very highquality shortterm debt and aim to maintain a steady 1 share price the yield gap between brokerage sweep accounts and the 100 largest taxable money market funds hit a record high of just under 4 percentage points at the end of february according to research firm crane data with the sweep vehicles yielding an average 043 and the money funds 439 at yearend 2021 before the fed started its current ratehiking campaign that yield difference was just 001 percentage point some brokerage firms have been able to keep sweep rates low in part because investors see these vehicles as very shortterm parking spots for cash and don’t focus on the yield “most people in cash think they’re only going to be there a matter of weeks” said peter crane president of crane data “but over time the balances add up” the yawning yield gap means that investors leaving substantial sums in brokerage sweep accounts for any length of time should reassess their options experts say brokerage firms’ default sweep vehicles may be convenient and often provide the safety of fdic insurance but “it’s not like they’re holding you hostage” crane said indeed many small investors in recent months have switched cash over from brokerage sweep vehicles to moneymarket funds he said helping to drive moneyfund assets to a record of more than 53 trillion in mid march the failure over the past week of silicon valley bank sivb and signature bank sbny may only accelerate a broader trend of savers yanking money from loweryielding bank deposits said ken tumin senior industry analyst at lendingtree particularly for those with cash balances over the 250000 fdic limit “it might be another reason for them to expedite movement over to tbills and money market funds” he said as the yield differences and stability concerns dampen savers’ enthusiasm for keeping large balances in bank deposits low brokerage sweep rates were already drawing scrutiny a year ago when the fed started raising rates massachusetts secretary of the commonwealth william galvin in march 2022 directed the state’s securities division to investigate brokerage firms’ sweep account rates letters sent to a halfdozen brokerage firms including bank of america bac ’s merrill and lpl financial lpla asked whether the firms intended to increase their sweep rates and how risks and any conflicts of interest associated with the sweep programs were disclosed to customers among other issues “it’s simply unfair that consumers are being asked to pay more on credit cards and loans while the banks are pocketing the interest rate hikes that should be earned on custodial money instead of raising interest rates for people who are trying to keep their savings” galvin said in a statement when the investigation was launched the investigation is ongoing a galvin spokesperson told marketwatch merrill and lpl did not respond to requests for comment sweep account rates used to be more competitive with money market funds but as brokerage firms have shifted to zerocommission trading they’ve become more dependent on sweep revenues crane said in some cases a sweep vehicle may funnel deposits into a brokerage firm’s affiliated bank and boost profits for the parent company not all sweep accounts are offering paltry yields at vanguard for example brokerage clients’ uninvested cash is automatically swept into the vanguard federal money market fund which invests in shortterm us government securities and has a sevenday yield of 453 vanguard is also piloting an alternative fdicinsured sweep option which had a 31 annual percentage yield as of early february the new vehicle gives investors “more options to achieve competitive cash yield in different interest rate environments” vanguard said in a statement “some investors may prioritize fdic insurance above other considerations for their liquid funds” fidelity brokerage customers’ default sweep vehicle is fidelity government money market fund which has a sevenday yield of 423 alternative sweep options at fidelity include a treasuryfocused money market fund and an interestbearing cash option called fcash which does not come with fdic coverage and offered a rate of 232 as of early february brokerage customers whose cash is swept into bankdeposit vehicles sometimes get much lower yields for brokerage customers at charles schwab schw  the default sweep account is an fdicinsured bank vehicle with a 045 apy customers can also opt to move their cash into higheryielding money market funds but money funds aren’t an automatic sweep option so they’d need to make those transactions manually the bank sweep vehicle “offers yields that are significantly higher than what is offered by most bank sweep options and bank checking accounts up to 45 times higher in some cases” said schwab spokesperson mike peterson clients value the insurance protection and “convenient access to their cash via free debit cards check writing bill pay and more” peterson said at morgan stanley where the sweep rate is 001 for cash under 500000 a spokesperson said “we offer numerous cash alternatives both morgan stanley products and from third parties into which clients can choose to deploy their cash”