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Maximizing Your Uninvested Cash: A Guide by O1ne Mortgage

At O1ne Mortgage, we understand the importance of making the most out of your financial resources. Whether you’re saving for a short-term goal or planning for the future, knowing how to manage your uninvested cash can make a significant difference. In this comprehensive guide, we’ll explore various options for storing uninvested cash in a brokerage account and alternative places to keep your money safe and growing.

What Is a Brokerage Account?

A brokerage account is an investment account that provides access to the stock market. It allows you to trade and invest in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Unlike retirement accounts such as 401(k)s and traditional IRAs, you can access your funds without penalty, although you may be taxed on investment gains. Brokerage accounts are versatile tools for achieving both short- and long-term financial goals.

What Happens to Uninvested Cash in a Brokerage Account?

At any given time, you might have cash in your brokerage account that you haven’t yet invested or withdrawn. Many brokerage firms will automatically “sweep” this money into an interest-earning account or other investments. Options vary from one brokerage account to the next, and interest rates and risk levels can fluctuate.

How to Store Cash in a Brokerage Account

There are multiple ways to hold cash in a brokerage account. These options work differently from similar accounts you might find at your bank because they are provided through brokerage firms and robo-advisors, not financial institutions.

Cash Management Accounts

Uninvested funds in a brokerage account might be swept into a cash management account (CMA). This type of account combines the features of a checking and savings account. Account holders can transfer funds, pay bills, and some have a linked debit card for everyday transactions. CMAs typically have lower fees compared to traditional bank accounts and can offer annual percentage yields (APYs) that top 4%.

Money in a brokerage account is insured by the Securities Investor Protection Corp. (SIPC) for up to $500,000. Brokerages and robo-advisors typically partner with FDIC-insured banks to provide CMAs, so when uninvested cash is swept into a CMA, it’s typically covered for up to $250,000 per depositor, per financial institution. For larger amounts of money, some brokerages will spread your funds across multiple accounts to keep more of your cash insured.

Money Market Funds

A money market fund is a type of mutual fund that invests in short-term, low-risk assets, such as CDs and government bonds. These funds are considered safer investments that can provide income via regular dividend payments. They are particularly attractive when interest rates are on the rise because dividend payments are linked to short-term interest rates.

Higher-than-average APYs are a big draw, with some money market funds offering yields that currently exceed 5%. However, one drawback is that money market funds are not insured by the FDIC or SIPC, so there is always a risk of losing money.

Pros and Cons of Keeping Cash in a Brokerage Account

Pros

• CMAs are linked to your brokerage account, allowing you to easily reinvest your earnings.
• Some cash management accounts offer extra perks, such as no account fees and cash back opportunities, in addition to the APY.

Cons

• You may find better APYs elsewhere. Some high-yield savings accounts currently offer yields greater than 5%.
• There is a risk of losing money if your cash is swept into a money market fund, as these funds are not insured by the FDIC or SIPC.

Alternate Places to Store Your Cash

High-Yield Savings Accounts

As the name implies, these accounts offer higher interest rate yields than traditional savings accounts, helping your money grow faster. High-yield savings accounts are easily accessible, making them a great place to store your emergency fund or other cash savings.

Certificates of Deposit (CDs)

With a CD, your money is locked up for the length of the CD term, which can range from one month to 10 years. While you may be penalized for early withdrawal, holding out can be worth it, with some CD rates currently as high as 5.48%.

Money Market Accounts

Money market accounts are similar to cash management accounts, offering interest and allowing withdrawals with a debit card or checkbook. However, some money market accounts are limited to six electronic withdrawals and transfers per month. Currently, it’s possible to secure APYs above 5%.

The Bottom Line

Brokerage accounts aren’t just for investing in the stock market; they can also put your uninvested cash to work, allowing you to earn more. APYs and risk can vary depending on your brokerage firm or robo-advisor. In some cases, it might make more sense to store your cash in a high-yield savings account or other low-risk investment vehicle.

At O1ne Mortgage, we’re here to help you make the best financial decisions. For any mortgage service needs, call us at 213-732-3074. Our team of experts is ready to assist you in achieving your financial goals.

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