The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help educate investors about cash sweep programs, which broker-dealers and investment advisers (“investment firms”) offer to manage uninvested cash held in accounts by their investment firms.  This Investor Bulletin describes these cash sweep programs and suggests questions you may want to ask yourself to help you decide how to best manage the uninvested cash in your investment account.  

What is a cash sweep program for uninvested cash?

When you open an investment account, your investment firm typically asks you to select what is generally called a “cash sweep program” for the uninvested cash in your account. Uninvested cash in your account may include money you deposit into your account, cash dividends or interest from your existing investments, or cash from an investment sale awaiting further investment. 

Cash sweep programs generally provide you or your investment professional with a convenient way to access and manage the uninvested cash in your investment account. Some cash sweep programs may also provide you with other financial services, such as check writing, electronic bill payment services or the use of a debit card. Each cash sweep program has different features, so you should ask your investment firm about the features of each cash sweep program it offers.   

The three most common cash sweep programs for uninvested cash are:

• Money market fund sweep programs. Money market fund sweep programs automatically transfer (or “sweep”) cash to one or more money market funds. Money market funds are a type of mutual fund that have relatively low risks compared to other mutual funds and most other investments. Money market funds generally invest in high quality, short-term debt securities, such as Treasury bills, and pay dividends that generally reflect short term interest rates. As explained below, cash swept for the purpose of investing in a money market may be protected by SIPC. Money market funds should not be confused with money market deposit accounts. A money market deposit account is a type of bank account, and if it is held at an FDIC-insured bank, it is insured by the FDIC up to the dollar limits established by law. An investment in a money market fund, however, has no FDIC insurance coverage because it is a type of mutual fund and not a bank product. For additional information on money market funds, please read our Investor Bulletin: Focus on Money Market Funds.
   
• Bank sweep programs. Bank sweep programs sweep uninvested cash in your account into a deposit account at one or more banks that may or may not be affiliated with the investment firm. Cash in a bank sweep program generally earns interest at a variable interest rate. This interest rate and the terms and conditions of bank sweep programs can vary significantly. Bank sweep programs also often pay less interest than money market fund sweep programs. As explained below, bank sweep programs provide FDIC insurance at each FDIC-insured bank that participates in the bank sweep program, up to certain limits. For additional information on bank sweep programs, please read our Investor Bulletin: Bank Sweep Programs.
   
• Leaving cash in the investment account. As an alternative to bank sweep programs or money market fund sweep programs, uninvested cash in an investment account may simply remain on deposit at the investment firm. This is generally known as a “free credit balance.” Investment firms may or may not pay interest on your free credit balance. Ask your investment firm if money left in your account at the investment firm will earn any interest and if you have the option to select another cash sweep program to earn interest on your uninvested money. As discussed below, cash left in your account at your investment firm is generally covered by SIPC protection.

Key questions about your uninvested cash.

Which cash sweep programs for uninvested cash are available for my investment account and is there a default option?

Ask your investment firm, review your brokerage account agreement or investment advisory agreement, or check your account statement, to determine your investment firm’s cash sweep program options for uninvested cash. Your brokerage account opening materials should explain how your broker-dealer’s cash sweep programs work, and your broker-dealer must give you 30 days’ written notice of any changes to the terms and conditions or products offered in a broker-dealer’s cash sweep program. Similarly, your investment advisory agreement, and any accompanying disclosure, and the brochure in your investment adviser’s Form ADV filing, should provide a description of how the adviser’s cash sweep program for uninvested cash works. If the cash sweep program options are not clear to you, ask your investment firm to explain them to you. 

Many investment firms have a default cash sweep program for uninvested cash that the firm may automatically enroll you in if you do not select another option. The default cash sweep program for many investment firms is often a bank sweep program. If your firm has a default option for cash sweep programs, make sure you carefully consider whether this is the best option for your uninvested money. Consider asking your investment firm to explain other available options, including those available outside your investment firm.

What am I earning on the uninvested cash in my investment account, and what alternatives are available to me, including outside my investment firm?

What you earn on uninvested cash from your investment firm’s different cash sweep programs can vary significantly. Remember, you can move your uninvested cash in search of higher interest or dividend rates, even if your firm automatically enrolls you in the firm’s default cash sweep program option. Consider which cash sweep program options available to you provide a higher rate of return for your uninvested cash. In determining the best option for your uninvested cash, please remember to also carefully consider the costs, risks, and benefits of each option. If you decide to change your cash sweep program option for uninvested cash, ask your investment firm how to do that. You should also consider comparing the interest and dividend rates for the cash sweep programs at your investment firm against those for accounts outside the investment firm. If none of your investment firm’s cash sweep program options for uninvested cash provide comparable rates of return, consider keeping your uninvested cash in a financial account (such as a high-yield savings account) outside of your investment firm.

Do I want FDIC insurance or SIPC protection for uninvested cash in my investment account?

FDIC insurance and SIPC protection are designed to protect cash balances in certain financial accounts.
 
If you want FDIC insurance for your uninvested cash, you need to either participate in a bank sweep program that uses FDIC-insured banks or open a separate bank account with an FDIC-insured bank and transfer cash to your investment account when you are ready to invest. Consider how important FDIC protection is for the cash in your investment account and select the best option for you.

Bank sweep programs provide FDIC insurance up to the $250,000 limit per customer at each FDIC-insured bank that participates in the bank sweep program. Some investment firms use several FDIC-insured banks in their bank sweep programs. That may allow you to have FDIC insurance on deposits larger than $250,000 by spreading the money across multiple FDIC-insured banks. For additional information on FDIC insurance and bank sweep programs, please read our Investor Bulletin: Bank Sweep Programs.
  
Cash swept and invested in a money market fund sweep program or left in a brokerage account as a “free credit balance” may be protected by SIPC. If an investment firm is a SIPC member, and the SIPC member fails or goes out of business, SIPC protects against the loss of securities and cash deposited with the SIPC member. SIPC protection advances funds of up to $500,000 per customer (including a $250,000 limit for cash claims) to cover a shortfall in customer property. SIPC does not protect you against a decline in value of your securities. For additional information on SIPC Protection, please read our Investor Bulletin: SIPC Protection (Part 1: SIPC Basics).  

Do your investment firm’s cash sweep programs for uninvested cash have balance minimums or fees?

Some cash sweep programs for uninvested cash may require you to keep a minimum account balance to participate in the program or receive a better interest or dividend rate on your cash in the account. Some cash sweep programs for uninvested cash may also have account fees, such as account maintenance fees, asset-based fees, or transaction fees for withdrawals or other financial services. To the extent your account is subject to an asset-based fee (i.e., a fee based on how much money is in the account), maintaining cash in the investment account may increase the amount of asset-based fees that you pay. Make sure you understand or ask your investment professional to explain how these account minimums and fees and how they may impact the cash and net interest or dividend rate in your investment account.

Additional Resources

Investor Bulletin: Bank Sweep Programs

Investor Bulletin: Money Market Funds

Investor Bulletin: SIPC Protection (Part 1: SIPC Basics) 

FDIC: Understanding Deposit Insurance (https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance/index.html) 

For more information regarding SIPC, please visit SIPC’s website (www.sipc.org).  If you have any questions regarding SIPC and the protection that it provides, you can email SIPC at asksipc@sipc.org. 

Visit the SEC’s website for individual investors, Investor.gov.

Call OIEA at 1-800-732-0330, ask a question using this online form, or email us at Help@SEC.gov.

This Investor Bulletin represents the views of the staff of the Office of Investor Education and Advocacy.  It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”).  The Commission has neither approved nor disapproved its content.  This Investor Bulletin, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.