Why Your Brokerage Cash Sweep Is Probably Paying You Less
Fidelity's default core position, Fidelity Government Money Market (SPAXX), yielded 4.96% as of 15 May 2026. Merrill Edge's default sweep for most accounts yielded 0.01%. Both numbers are publicly disclosed. One is a money market mutual fund; the other is a bank deposit sweep. The gap between them is not hidden — it is just not prominently advertised.
Why the Default Rate Is Low
Brokerage firms earn income on the spread between what they earn on your deposited cash and what they pay you. A brokerage routing your cash to its affiliated bank at 5% and paying you 0.01% earns 4.99% on your idle cash. This is called 'net interest income' and constitutes a significant portion of major brokerages' revenue. Charles Schwab's 2023 annual report showed bank sweep interest income contributing substantially to total net revenue. The default rate is low because that is how the model works, and changing it requires affirmative action from you.
The Alternative Inside Your Existing Account
At most full-service brokerages, you can change your core position from the default bank sweep to a money market mutual fund — no account transfer required. At Fidelity, this is done in Account Features → Core Position. SPAXX (Fidelity Government Money Market) and FZFXX (Fidelity Treasury) are the typical alternatives, both yielding 4–5% as of May 2026. At Schwab, the Schwab Value Advantage Money Fund (SWVXX) is available as a manual purchase; it does not replace the sweep automatically but can be held as a near-cash position.
Brokerages That Have Improved Default Rates
Robinhood offers 5.00% APY on uninvested cash for Gold subscribers as of May 2026, sweeping to FDIC-insured partner banks. Interactive Brokers pays 4.33% on USD cash balances over $10,000 as of the same date. Webull pays up to 5.00% on uninvested cash. These are meaningfully better defaults than legacy brokerages, and may be sufficient reason to shift cash positions — not necessarily full investment accounts — to a higher-paying institution.
The SIPC vs FDIC Question on Sweep Cash
The safety classification of your sweep cash depends on where it goes. A bank deposit sweep is FDIC insured (up to $250,000). A money market mutual fund is a security and covered by SIPC (up to $500,000 including a $250,000 cash sublimit). Both are safe for practical purposes at regulated institutions, but they are not the same kind of insurance.
Frequently Asked Questions
Is a brokerage money market fund as safe as an FDIC-insured account?
For practical purposes at a major regulated brokerage, yes. Money market mutual funds are required by SEC Rule 2a-7 to invest in very-short-duration, high-quality instruments (Treasuries, agency securities, top-rated commercial paper). They have maintained a $1.00 net asset value throughout market stress episodes with one prominent exception — the Reserve Primary Fund 'broke the buck' in September 2008, a singular event that triggered SEC rule changes. The combination of SEC regulation and SIPC coverage makes them low-risk, though not identical to FDIC bank insurance.
Related Products
Primary Sources
- [1] SEC Rule 2a-7 (Money Market Fund Rule) — sec.gov
- [2] Schwab 2023 Annual Report — schwab.com/investor-relations
- [3] SIPC: Cash vs Securities — sipc.org