Outside the Box: Are you leaving money on the table in your investment account?

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What’s the rate on your hard-earned cash in your brokerage account? For most investors the answer is close to 0% — and that’s a problem.

Approximately $1 trillion is sitting in uninvested cash at brokerage firms, according to Crane Data. Investors deserve an easy way to make more money off their cash — especially in the face of recent market volatility. Now is the time to find out whether your financial services firm is making a whole lot more on your cash than you are.

When investors open a brokerage account, they often leave money, sometimes substantial amounts, in the account. They may be deliberating how to invest the money, or putting it on the sidelines, or holding it for other investment purposes. For far too many people, that cash returns almost nothing thanks to a low interest rate and a lack of choice from most brokerage firms. Fortunately, investors have another option to make their cash work much harder with a very different approach.

Is your money being swept under the rug?

Regardless of why investors hold some of their money in a cash account, it’s frustrating to know that many firms automatically “sweep” the funds into an affiliated bank and offer no other default option. Even the savviest investors can get saddled with a low yields on their cash. Their brokerage firm might not give them a choice for their core position. Or, if they do give them a choice, they certainly don’t advertise it.

Most investors don’t realize how much their brokerage firm profits from their cash (and inertia) or that there’s a better way. The result is that investors lose the opportunity to earn real money. The difference between a low-yield sweep rate and a higher-yield money market rate today could be close to 2%. Over a lifetime of investing, the difference can really add up.

Investors deserve more

According to Federal Reserve data, Americans had $19.4 trillion sitting in cash in various types of accounts at the end of last year. That’s a lot of cash that could be earning a lot more interest — for a lot of investors. While the variety of options for how to manage cash may be fewer than those for investing in stocks or bonds, investors do have choices.

Research that Fidelity Investments conducted this year showed that about 9 out of 10 investors go through account opening without changing their sweep option. But about 8 out of 10 chose the higher-earning option when given more information about it. Investors should ask if their brokerage firm is automatically sweeping cash into a high-yielding investment vehicle. Only a handful of firms, including Fidelity, take this approach as we believe it’s the right thing to do for investors.

Education is key, but in most cases the investor has to make a conscious and proactive effort to invest his or her cash in a higher-yield vehicle — rather than just stick with the default sweep account. (Note: Some investors might choose to stick with a default sweep account because it’s FDIC-insured, and that’s understandable. But the higher-yielding accounts that some brokerages offer also could be FDIC-insured. And even if they’re not, the risk might be tolerable for many investors.)

Take an interest in your interest rate

Remember: Someone is earning a lot of interest off of the trillions in uninvested cash, and it’s probably not you. The onus is on the investor, to find a better option. You can easily take the initiative with a few key questions:

•Before opening a brokerage account, ask the firm how it will treat your idle cash.

•Does the firm automatically direct your cash into a higher-yielding option, or does it direct the cash to a low-yielding affiliated bank account or other sweep product?

•Does the firm offer you a choice for how your cash is invested, or are you forced into an option that can benefit the firm more than you?

•What’ the total picture? The cash sweep rate should be part of your evaluation of the overall value the firm can provide, which may also include no minimums, low commissions, 24/7 customer service, and great investor education.

Make sure you choose a firm that’s got your back and can help make your cash work for you, no matter which direction rates are headed. Investors deserve to know what their money is doing and how the brokerage is treating it. And they deserve to be confident that their firm is working hard for their customers, and not just to maximize their profits.

Kathleen Murphy is president of Fidelity Personal Investing. She is also responsible for Fidelity’s life insurance and annuities business; its workplace savings business for tax-exempt organizations; all of the firm’s brand and advertising programs; Fidelity’s digital and data programs; Fidelity’s cross-company product & solution innovation; and Fidelity’s advisory services for retail and workplace managed accounts. Murphy sits on the Board of Governors of the Financial Industry Regulatory Authority (FINRA).