Brokerages are likely to slash yields on cash. These firms are still offering solid rates

CNBC

5 days ago

Yields brokerage firms are willing to pay on idle cash are expected to cool in the second half of this year, but a few companies are still offering attractive rates for now. The Federal Reserve hasn't made any movement on interest rate cuts since last December, maintaining its target interest rate range at 4.25% to 4.5%. Central bank policymakers are widely expected to stand pat at the conclusion of their July meeting next Wednesday, too. Nevertheless, brokerages have been busy as of late, pulling back their cash sweep rates – the yields they pay on dollars that haven't yet been deployed into investments. Earlier this year, Raymond James Financial trimmed its rates by five to 25 basis points, depending on the amount of cash a client has, according to an analysis by Bank of America. Those with a relationship cash value of less than $250,000 can get 0.15% APY on their idle funds, while the largest accounts – those with $10 million or above in cash balances – can pick up 2.28%. Bank of America expects those rates to continue sliding, particularly once the Fed resumes its cuts. "Currently, the market is pricing in 2-3 cuts this year and an additional 2-3 cuts next year," wrote Craig Siegenthaler, Bank of America, in a recent report. "This implies that we will see much more activity on cash sweep rates over the next 12 months." Falling cash sweep rates encourage investors to put their idle cash to work. Further, lower yields on sweeps dampen the effect Fed rate cuts have on brokers/ net interest margin and net interest income, Siegenthaler said. Higher rates in select places Despite the the shift, a few places are still offering solid yields. For now, eToro offers an annual percentage yield of 3.9% in its High Interest Cash Program . The brokerage earlier this year cut its rate from 4.15%, Bank of America's analysis found. Vanguard's Cash Plus Account is offering a yield of 3.65%, which reflects a 25 basis point cut the firm made earlier this year. The coveted 4% APY, which has become hard to find as brokerages reduce rates, is still out there, too. Robinhood Gold members can earn 4% yields on their uninvested cash , as can clients who have accounts managed by Robinhood Strategies, the firm's investment advisory service. Be aware that brokerage firms can cut their rates at any time, though. Further, these yields aren't enough to keep up with inflation over time. Investors who want to lock in attractive yields – and who don't mind reduced access to their cash – might be better off in a certificate of deposit . Popular Direct offers a 12-month CD with a yield of 4.3%, while Bread Financial has a similar CD with a rate of 4%.