Just open an account—we take care of all of the details for you in the background. All cash is automatically included in the Sweep Program, and will either be swept into FDIC-insured banks participating in our Sweep Program (“Banks”) or held by us under the Sweep Program where it is protected by SIPC-insurance.
For funds we do not hold we automatically distribute your cash across many different Banks. Each deposit in each Bank is FDIC insured to $250,000. When we add more banks to our program, we increase the amount of FDIC insurance available to you automatically. You should know that the insurance applies to each separate account registration—so joint accounts with two owners receive insurance up to $500,000 per Bank. Amounts held under the Sweep Program directly by us are SIPC insured.
Some of the Banks where funds may be swept are well-known national brands, while others appear to be smaller regional banks. Will my cash be safe in all of the Banks?
Federal Deposit Insurance Corporation (FDIC) protection is made available through a government-backed program that operates the same for small and large banks. If any Bank were to fail, your cash would be covered by the FDIC. There are no special steps that you would have to take, and you would be able to withdraw your cash through the normal means provided by us. Amounts held under the Sweep Program directly with us are protected separately by SIPC insurance.
You receive the following advantages: extended FDIC insurance in the millions of dollars per account (see Extended FDIC Insurance for current amounts), the opportunity to earn more interest on your cash balance than it may be earning at your local bank in a checking account, the ability to consolidate lower-yielding cash balance accounts into this account to qualify for a higher rate, plus our check-writing and automated cash transfer services.
It is expected that interest rates payable under the Sweep Program will generally be competitive with rates paid by banks for interest-paying checking accounts Consequently, our rates of return are generally at the low end of rates available in the marketplace and more similar to rates payable on cash in non- or low-interest paying checking accounts than in higher-yielding cash-based deposit accounts. Our interest rates are “tiered” so that as you hold more cash in the Sweep Program you have the opportunity to earn a higher interest rate. We also aggregate the cash in all accounts with the same taxpayer ID number on the account for purposes of the tiering to qualify your cash balance for higher interest rates. Tiering does not affect how much of your cash qualifies for FDIC insurance coverage. For example, an individual account and a retirement account and a joint account with the same taxpayer ID number on each account will be aggregated for purposes of elevating funds into a higher tier which can earn a higher interest rate. The same accounts are not aggregated for FDIC insurance coverage, so you get the benefit of expanded FDIC insurance for the cash you have in each account. All cash held under the Sweep Program directly by us earns the same rate of interest as all other cash in the Sweep Program and is aggregated with all cash swept into Banks for the purposes of elevating cash into a higher-paying tier.
You should compare our rates with those offered at competing banks, brokerages, and mutual funds. You will be able to obtain higher rates elsewhere, but we believe we offer the best package of services, rates, innovative offerings and other benefits for longer-term investors.
We do not support money market funds or other alternatives to our Sweep Program for your uninvested cash. We do have an optional cash investment product—FDIC.PLUS—that usually pays a higher interest amount that you can elect to invest in by entering an order to buy or sell into it just like a stock. FDIC.PLUS has certain minimums and restrictions more akin to certain investment products, and the aggregation described above for the sweep product (FDIC.SWEEP) does not apply to the FDIC.PLUS product. The FDIC.PLUS product is not part of the Sweep Program, but it is subject to the same FDIC insurance limits for an account and counts towards the limits of FDIC insurance payable by any one Bank (in other words, the FDIC insurance limit includes both FDIC.SWEEP and FDIC.PLUS if they are held in the same account).
You may be disadvantaged if your cash balance in the Sweep Program does not qualify for higher-yielding tiers, in which event you will earn less interest on your cash than you would in many money market funds.
Importantly, however, the tiering allows us to pay higher rates to higher balances thereby allowing us to be more competitive for those higher balances, while also allowing us to earn more on accounts where the cash balances are low and the cash balance is being used, for example, more like a checking account (for which many banks usually pay no interest at all). This in turn allows us to keep fees low for our smaller accounts and continue to innovate and grow for the future.
The interest applied to your cash balance will be calculated as a blended rate. It is intended that a higher cash balance will qualify for a higher tier and therefore qualify for a higher blended rate, while a lower cash balance will qualify for a lower blended rate. The blended rate will be derived from the current tiers and rates then in effect. All interest rates and annual percentage yields are effective as of the date provided, and are subject to change at any time (this is a variable rate account so rates are subject to change after the account is open). The daily balance method is used to calculate interest. This method applies daily periodic rates to the collected balance in the account each day.
Yes, on qualifying balances our FDIC.PLUS product generally pays a higher rate of return than our Sweep Program product.
The interest paid is generally tied to short-term (monthly) interest rates. Rates paid to customers will generally fluctuate if short-term interest rates fluctuate (above certain levels). The effect of any short-term interest rate fluctuation on rates paid to customers will be determined based on the fluctuation in the short-term interest rate, competitive factors, our costs to operate the Sweep Program, amounts invested in the Sweep Program, the then-current tier structure, and other factors. It is determined overall by a formula which is subject to change upon prior notice. The interest paid by the Banks is set by them based on their deposit needs and is what we receive. We make money based in part on the difference between the amount the Banks pay on cash invested in the Sweep Program and what we pay customers on their cash in the program. Any cash held under the Sweep Program directly by us pays interest to the customer at the identical rate as cash swept under the Sweep Program to a Bank.
The program currently offers in the millions of dollars per account (some accounts are counted together, for example if you have multiple individual accounts). (See Extended FDIC Insurance for current amounts.) FDIC covers both the principal and accrued interest in each account for any bank that fails. SIPC insurance does not apply to any amounts in bank deposits. SIPC insurance covers cash in the Sweep Program that is not held in FDIC-Insured banks but that is held directly with us instead and generally provides protection for cash up to $250,000.
Importantly, for FDIC and SIPC purposes, each account type is calculated separately (individual versus joint versus trust versus business)—so a joint account and an individual account can each have up to, for example, $1 million (for a total of $2 million) and each would be fully covered by the applicable FDIC of SIPC insurance under the Sweep Program. For a more detailed explanation, consult the FDIC website (www.fdic.gov) or the FDIC, Office of Consumer Affairs, by letter (55017th Street, N.W., Washington, DC 20429), by phone (877-275-3342), or by email (firstname.lastname@example.org). You may contact SIPC through its website (www.sipc.org), by mail (Securities Investor Protection Corporation, 805 15th Street, N.W., Suite 800, Washington, DC, 20005), by phone (202-371-8300) or by email (email@example.com).
If you have a cash balance greater than the FDIC coverage in effect at any time, then that excess amount will not be insured, except to the extent it is protected by SIPC insurance. We will place the excess amount in a single bank, pro-rate the excess across several banks in the program, or hold the amount in free credits.
We act as your agent with the banks in the Sweep Program and as the custodian for cash in the Sweep Program held directly with us.
There are currently no specific fees, such as commissions, for participating in the Sweep Program. However, we make money from the Sweep Program based, for example, on the difference in the rates paid by the Banks on cash invested in the Program and the amount that is paid to you under the Program, which can be viewed as a “fee.”
All accounts that you have with us are eligible for the Sweep Program.
Any available cash you have will be swept into the Sweep Program on a daily basis. If you wish to invest in the FDIC.CASH or FDIC.PLUS offering, then you buy or sell those offerings as if they were a stock. We reserve the right to sweep cash under the Sweep Program directly to us where it is held by us and protected by SIPC insurance. The amount that may be held directly by us from time to time as opposed to deposited in Banks is subject to our discretion and expected to change frequently and from account to account.
No. There is no minimum balance required.
Yes. We, as the agent, withdraw money from the Sweep Program to satisfy debts created in your brokerage accounts, such as when you buy stocks or write a check.
Current rate information can be found on our website, and the rate you actually earned is listed on your month-end statements.
There is a separate line item in the account summary that lists the balance in the Sweep Program as of the statement end date with the notation that this money is protected by FDIC insurance, but not SIPC insurance, if it is held in a FDIC insured bank, or by SIPC insurance if it is held directly with us, and the rate you earned. There is also a section indicating the names of the Banks to which your money was allocated as of the end of the statement period, or our name if cash is held directly.
As ordinary income.
Yes, the client agreement contains the details of the Sweep Program. Refer to our website (Login page) to view the current agreement and the Sweep Program terms and conditions.
No. You do not receive a passbook or certificate for your cash in the Sweep Program. Evidence of your ownership is reflected in our books and records as the agent and, therefore, on the month end statement you receive from us.
Yes. The Banks will change as banks are added to or deleted from the Sweep Program, and those additions or deletions will increase or decrease the amount of FDIC insurance available at any one time.
You may wish to eliminate any bank with which you already have an account, if the combined total you have in that bank and with us under the Sweep Program would exceed the amount of FDIC insurance available to you from that bank. You are responsible for monitoring the list of banks in the Sweep Program to make this determination. To eliminate a specific bank, simply contact Customer Service. You can not eliminate us as a recipient of your cash.