How The Best Online Brokers Boost Your Cash Holdings (2024)

Online brokers face stiff competition when it comes to paying clients to park their idle cash. They've had to up the ante as interest rates have risen and investors had plenty of cash management options to choose from.

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Cash management options are a priority for online investors. So say the customers who decided the winners of IBD's 12th annual Best Online Brokers survey.

Cash-heavy traders who have been sitting on the sidelines expect higher rates on their cash balances. Online brokerages are competing with 5% interest rates on Treasury bills and some CDs, as 2023 interest rates hit levels not seen in more than 20 years.

Meanwhile, yields on uninvested brokerage cash can vary from less than 1% to around 5%. Some institutions have increased yields and offered products to retain clients' dough, while others still pay less than 1%.

Based on the overall scores of the eight online brokers that qualified for the survey analysis, IBD identified its four Best Online Brokers for 2024. They are Ally Invest, Fidelity Investments, Charles Schwab (SCHW) and Merrill Edge. Ally Invest is the brokerage arm of Ally Bank/Ally Financial(ALLY). Merrill is part of Bank of America(BAC).

Brokers With The Best Cash Options

IBD's 2024 Best Online Brokers survey asked respondents to rate their primary brokers on 20 attributes. One criteria was cash management choices and their level of trust in that area. The survey found online brokerages Fidelity, Robinhood (HOOD), Ally Invest, and Vanguard highly ranked in this category.

See The Full Special Report On IBD's 2024 List Of The Best Online Brokers

According to Bankrate, the national average annual percentage yield on a money market account was less than 0.5%, while the national average on a savings account was slightly more than 0.5% in January. Yes, less than 1%. With 11 Federal Reserve rate hikes in the past two years and the federal funds rate at 5.25% to 5.50%, that may be surprising. But select money market funds are paying around 5%, including low-risk governmentsecurities funds.

This Brokerage Pays About 5% On Your Cash

Fidelity has ranked among IBD's Best Online Brokers for all 12 years the survey has been conducted. A companyspokesperson said that for retail brokerage and retirement accounts, Fidelity works on the side of investors by automatically directing investors' cash into a money market fund.

When you open a Fidelity non-retirement account, it establishes what is called a core position, used for cash transactions and uninvested cash. You have the choice of two high-yield government money market funds to hold your surplus cash. Its default fund is the Government Money Market Fund (SPAXX) or you can opt to have your balance put into the Treasury Money Market Fund (FZFXX). Both have an APY of around 5%. Not bad. These funds have an expense ratio around 0.42% to 0.46%.

Its Cash Management account is a brokerage account designed for spending and cash management. There's no minimum to open an account and no account fees. The available cash balance sweeps into an account earning 2.72% APY.Cash balances exceeding FDIC insurance coverage limits sweep into the government fund.

Fidelity offers its wealth management clients, those with more than $250,000 in professionally managed assets, the Fidelity Rewards+ program. The program offers higher yielding, lower expense money market funds based on three tiers of eligible assets. Asset tiers range from $250,000 to $1 million, $1 million to $2 million, and above $2 million. Yields range as high as 5.2% to more than 5.3% on these elite funds.

Fidelity also offers its Treasury Only Money Market Fund (FDLXX) and Government Cash Reserves Fund (FDRXX). Both earn around 5% APY.

The online broker currently offers its highest certificate of deposit rate of 5.1% on both the 3-month and one-year duration CDs. For those with smaller amounts, Fidelity introduced fractional CDs, which allow you to purchase CDs at increments as low as $100.

Other Ways To Boost Cash Management

With Fidelity's Bloom financial app you open two brokerage accounts: a "save" and a "spend" account. The app is designed to help investors improve their saving and spending habits. Bloom holds the uninvested cash in its Government Money Market Fund. Bloom's cash rewards include a 10% annual savings match up to $300 of deposits to your saving account. In addition, app users receive a 10-cent reward for every purchase made with the Fidelity Bloom debit card.

Also ranking highly in the cash management category is Robinhood. Its app has been targeted toward newer investors. It currently pays 1.5% APY on uninvested cash, but that jumps to a lofty 5% APY on its premium Robinhood Gold Account. Its Gold accounts fee is $5 per month.

Another cash building perk is Robinhood's 1% Individual Retirement Account match when you transfer another IRA or old 401(k) into your IRA. Contributions must be kept in your IRA for at least five years from the deposit date to keep the match. Its Gold membership account pays a 3% match. But you must maintain the membership for at least one year from the date of your first 3% match.

More Cash Management Options: High-Yield Savings

Online brokerage Vanguard offers six money market funds with a $3,000 minimum investment requirement. One of its high-yielding funds is the Federal Money Market Fund (VMFXX) with a 5.29% APY and an 0.11% expense ratio. This is the default fund used for Vanguard brokerage account settlement funds. Its brokerage and mutual fund accounts charge a $25 annual fee, but the fee can be avoided by signing up for e-delivery of documents or holding an asset balance of at least $5 million.

Vanguard's Cash Reserves Federal Money Market (VMRXX) pays a 5.30% compound yield with a 0.10% expense ratio. A third option is the Treasury Money Market Fund (VUSXX), with a 5.3% annualized yield and a 0.09% expense ratio.

Next is Ally, which took top honors for overall customer experience score in this year's Best Online Brokers survey. Ally Invest's no-minimum balance Money Market account earns around 4.4% APY. Also, Ally is currently offering a 12-month CD with a 5.00% APY. And its savings account pays 4.35%. Ally offers products specifically for IRA accounts including a 5.25% high-yield CD.

It literally pays to find out how much your uninvested cash is earning.

Follow Kimberley Koenig for more stock market news on X/Twitter@IBD_KKoenig.

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