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View Full Version : Ameritrade vs. CDs


squiffy
11-04-2005, 01:53 AM
Ameritrade was barely paying 1% a year on cash balances.

And my Bank of America savings was barely paying 1% a year, if that.

My friend suggested I put money in CDs with a bank at 3-4%. But the problem with that is that if you need the money to buy stocks, you will usually forfeit all the interest earned, if you withdraw it early.

So I next considered money market accounts, which generally pay a bit less than CDs, but which usually allow you to write 6 checks per month. But there is a 10 day hold on checks deposited to Ameritrade. Wiring funds is quicker, but banks usually charge a fee of $20 or more per wire.

Finally, a week ago, Ameritrade announced you can sign up for a money market reserve fund. Any cash balances can earn interest at about 3%. There is some risk, but hopefully negligible.

And it has unlimited checkwriting.

So this way, your cash earns 3% while you are waiting for stocks to drop to a reasonable price. And you can even sell naked puts, and earn some additional money that way, while waiting for a stock to drop to a buyable price.

Anyone know of money market type sweep or reserve accounts at other discount brokers?

I have Scottrade too. Just opened a small account there. But haven't called yet to see if they have a money market account. Regular interest is no higher than Ameritrade, about 1% a year, if I remember correctly.

rhizome
11-07-2005, 08:30 AM
Put it in an online savings account earning 4%.
http://www.emigrantdirect.com/

DesertCat
11-07-2005, 11:53 AM
All brokers should offer sweep accounts, anyone reading this thread should check their accounts to make sure they are benefiting.

Sweep accounts is that you can use the money to directly buy stocks with no hassles. But if you are willing to deal with a little hassle to earn higher rates, you can usually find Vanguard money market funds or bond funds that will pay higher interest and buy them directly in your brokerage account.

It's only a day or two to cash in those funds if you find a stock you want. There isn't any risk to the money market funds, but with the bond funds you take the risk of flunctuations in value. The shorter the duration, the less flunctuations you will have (but usually less interest). It's almost always a trade off between zero risk money markets, and more interest from bond funds.

Or you can just transfer funds in between your brokerage account and emigrant.

Sniper
11-07-2005, 09:20 PM
One of the side benefits of keeping your mutual funds and money market account sweeps in your brokerage account, is that those funds become marginable and you can take advantage of opportunities that arise, immediately.