Merrill Edge Brokerage: Higher Interest Rate Options on Cash Sweep

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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 (<$250,000)". As of 2/15/19, it is a rather sad 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.

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  1. I was recently went through all my financial accounts and make sure that I am earning decent money on my cash. I transferred out all my cash on my taxable accounts to ally bank. However, I invested all my cash in my merrill edge ira account in a brokered cd. I am earning about 2% in a one year cd and it is fdic insured.

  2. With both Schwab and Fidelity offering easily purchased money funds at 2.3%+ why would anyone want to bother with Merrill Edge?

    • If you buy individual stocks or select ETFs, Merrill Edge will give you 30 or 100 free trades every month. Schwab and Fidelity won’t do that if they aren’t included in their free ETF marketplace, and that cost difference may be more than any interest rate difference.

    • There are a couple of Treasury funds offered at Merrill yielding fewer than 10 basis points less than FZDXX. The advantage of the Treasury funds is that in high income tax states, because of the tax savings (Treasuries are state-tax-exempt) their after tax yields are around 10 basis points higher than FZDXX’s.

  3. If you do anything besides auto-sweep, especially in non-marginable account like IRA, will you be able to close that position and open a stock position same day? My understanding funds will not be available at least for 1 day. That’s primarily the reason I’m not looking outside of auto-sweep.

  4. I complained to my Merrill Edge (ME) representative when ME changed the sweep option and discontinued the sweep to a money market fund. I have tried the options you have discussed in your article and don’t like them. I have decided the best thing to do is have ME automatically sweep my dividends and interest to my credit union.

    One of the reasons I no longer have an account with Schwab is that they did the same thing with their sweep account.

    I think that Vanguard offers the best sweep feature because of the interest rate on VMFXX. However, I usually manually move money to VMMXX for high interest, but if you wanted cash to trade you will need to enter sell transaction.

    While Fidelity has lower money market rates than Vanguard, they pay a reasonable rate on SPAXX and you can move funds manually to either SPRXX or FZDXX. I understand that when you trade or do a money transaction that Fidelity looks at your overall money market total, so there is not a need to enter a sell order. I have added a Fidelity account as a “pay from” account in my Bank of America bill pay and use it to pay my bills. This way I have increased the interest rate significantly over what I received using my credit union account.

  5. Just discovered I can’t sell a cash covered put because the default sweep is “not considered as cash equivalents for this purpose.” Never had this issue with a broker before, I have the cash to cover the collateral but ME doesn’t consider their own sweep as cash. I’ll call them to see what’s up, but if anyone has any input let me know.

    • Exact same situation for me. I messaged them about it and below is the reply I received… I’m now trying to see if I can change my ME accounts to “no auto-sweep”. I didn’t even know that was possible. I thought a sweep account was required?

      Thank you for contacting Merrill Edge.

      Upon review of your account ending in XXXX, I see that the cash balance in the account is currently in the Bank of America, NA RASP money account. There are certain money accounts, including the ML Direct Deposit Program and Bank of America, NA RASP, that are not recognized as a cash equivalent through our system. In other words, the online system does not recognize that the account has a cash balance to cover the put trade, giving you the error message you received. You may contact us at the phone number below and one of our Investment Specialists will assist you with placing this trade at your online rate.

      Please note that within a self-directed Merrill Edge account, clients have several options available to allow for online cash put trading, including purchasing different money funds that the system will recognize as actual cash.

      Our system recognizes the BlackRock Liquidity Fund T – Fund (symbol BPTXX) as a cash equivalent to allow for online cash put trading. BPTXX currently has a $5,000.00 initial minimum investment. The BlackRock Liquidity Fund T – Fund Institutional (symbol TSTXX) has a $100,000.00 initial minimum investment. BPTXX and TSTXX are the same Money Market fund, each in a different share class, with different interest rates & expense ratios.

      Clients have the ability to enter purchase and sale trades online for Money Market funds on the Trades > Mutual Funds page. If a purchase is placed online to buy into a money market fund to cover a cash-secured put, it will require an overnight batch cycle to be recognized as a cash equivalent.

      Other available cash equivalents include:

      -The values of CDs & US Treasuries maturing in less than 12 months.
      -A client may request to change the account to no-auto sweep into a money account by contacting the Investment Center at 1.877.653.4732.

  6. Jonathan,
    Great article. Do you know if something similar – Preferred Deposit – options aviable with other borkers esp TDAmeritrade. Would greatly appreciate if oyu can build up on this post and cover TDAmeritrade. They offer terrible CD selction and thier yeild on cash is the worse.

    Thanks for this blog and your posts.

  7. Are all these options available for an IRA or Roth IRA? (I’m considering rolling over my 401k from a former employer into an IRA at Merrell Edge.)

  8. Pedro Stee says

    etrade has decent autosweep and neverva problem accessing it for trading

  9. ICSH has a better expense ratio than NEAR and very similar performance

  10. ERIC GILBERT says

    All, I have been with Merrill Edge for over 5 years. I have a great rep in Jacksonville because I am considered Premier because I maintain 3 accounts (CMA, Roth IRA and IRA) and my balances are over $1million.
    I moved to Merrill Edge from Fidelity in 2009 because of the 100 free trades, which I found out are not free because I am not sure I am receiving the best execution price plus my cash earns almost zero percent.
    Now that Schwab and Fidelity are also offering FREE trades with no minimum balance and both firms offer a 1.75% money market fund, Merrill will have to do something to retain customers. BTW, I did put my money in their recommended Blackfund fund but moved it when I saw there was a .65 fee to have the money market.

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