Ameritrade vs. CDs

[squiffy]

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.