Best Charles Schwab Sweep Account Rate Of Return?

Now, this question has yet to come up in my planning for the future, developing a great collection of stocks and ETFs for my future passive income generation. However, with recent changes in the stock market, it’s overvalued for our future economy; I am sitting on cash. So I’m concerned about getting the best Charles Schwab Sweep Account Rate of Return.

I’ve been stockpiling extra money into my Charles Schwab Sweep Account and wondered, what am I getting for parking money here? Am I getting the best Charles Schwab sweep account rate of return?

How “I” Am Approaching My Sweep Account Concerns.

I am sharing with you what I am doing to improve how my money works while waiting for a buying opportunity with my Charles Schwab brokerage account.

What I am doing requires a more active role in my financial outcome, and in no way is this financial advice. I am sharing with you the problem I found and the solution I came up with. Please comment below if you are doing something different or want to offer suggestions.

What I Mean By ‘Sitting On Cash?’

I turned off my dividend re-investments in my Charles Schwab account and let the money(deposited and dividends) get ‘swept’ into the Sweep Account.

Not to go too deep into this, but SCHD makes up most of my dividend investments, and my Charles Schwab account is wholly focused on SCHD.

I felt SCHD was releasing its dividends at a time when the prices were still a little high, and I wanted to sit on cash till the price dropped a little.

I’ll talk more about this later, but for now, I wanted the cash to earn interest higher than the annual dividend payout of SCHD while I waited for SCHD to become cheaper.

Counting nickles and dimes in Charles Schwab cash sweep account. — Saving Money For Timed Investments

What Is A Charles Schwab Sweep Account?

All money you have is associated with your account. This way, you always keep track of your money. It’s always sitting somewhere.

In my brokerage account, your money is invested in several places—stocks, ETF’s, Money Markets, etc. However, money not invested has to be assigned somewhere. This is the Sweep Account.

Now, as Warren Buffett credited with saying:

If you don’t find a way to make money while you sleep, you will work until you die.
Warren Buffett

So, does the sweep account work in your favor while growing your wealth and passive income generators? I was about to find out.

Charles Schwab Sweep Account Interest Rate?

So I logged into my Charles Schwab account, and from the “Accounts” page, and I clicked the “Balances” link(between “summary” and “positions” links):

I scrolled to the “Balance Details” section and looked for the “Cash & Cash Investments” area and a link, “Rates,” is to the right of the Cash Balance label. I clicked it:

Today’s Schwab Sweep Account Interest Rate (12/15/2023):

You can also check the current interest rates to with the Schwab Sweep Rate: https://www.schwab.com/cash-investments

I was shocked; what they call Schwab One Interest Rate for my sweep account was listed as making less than 1/2 of a percent(updated 10/19/2023 as 0.45% APR).

I was losing money. Even with a modest 2-3% inflation, my cash in the sweep account was being eroded. So imagine how fast my money was losing buying power at a 5-7% inflation rate. What Is Inflation?

Also, to add insult to injury, less than 1/2% was pre-tax.

So I would lose money on my money sitting in the sweep account, and then what little money it did, the government would take a deep cut of it as well.

A Better Charles Schwab Sweep Account Rate Of Return?

I cannot find any way to increase the rate of return from the Sweep Account.

This is a problem and found to offer a hint to the solution.

Get The Money Out Of The Sweep Account.

My Poor Charles Schwab Sweep Account Rate Of Return Solution.

As I mentioned, I got my money out of the Sweep account and moved it to another investment fund that is almost as liquid as cash but earning a better rate of return.

I moved my money into Schwab Value Advantage Money Fund® – Investor Shares.

Now, my parked money is earning higher than typical bank rates(Click Yahoo Finance’s Posted Current rate), and with my money working harder, I hope I don’t have to with time.

Parking Money In Charles Schwab Money Market Drawbacks?

Juggling Financial Responsiblities. — Unlike my retirement accounts, set it and forget it, my non-retirement accounts need some juggling.

As stated, I aim to focus on SCHD for my Charles Schwab brokerage account.

With money parked in the Money Market, it’s different from where I plan to end up. This is expected while waiting for prices to pull back.

But here is the real drawback I found.

Money Market Drawback #1:

Charles Schwab treats the sweep account as a holding spot, and the money is quickly available for trading.

It appears having the money invested into the Schwab Value Advantage Money Fund®, Schwab views it as already invested. Make sense, right?

So my cash wasn’t available for a limit order trade. I couldn’t do a ‘set it and forget it’ limit order to buy SCHD when the price pulls back to my desired entry point.

Money Market Drawback #2:

The Money Market is treated like a typical mutual fund. Today, orders buy in and out at the end of business on a trading day.

So, any money movement into and out of the money market account is delayed by one business day.

So, any planning I make for the money, I have to plan.

My Money Market Sweep Account Hybrid Fix.

I mentioned the drawbacks of using the Money Market account for my parked cash; I’m sure you figured out the easy solution.

Online brokerage accounts. — Online brokerages are easier now than when they first started.

Let Me Cover My Plan:

As SCHD remains far enough from my price target, for discussion, say $70, I will keep my money in the money market account.

As SCHD approaches the$70, I will put in trade to exit the Money Market fund, wait till the following day for money to become available, and then put in my limit buy order for SCHD.

Should SCHD move away from my target price, I will cancel my limit buy order and transfer the money back into the Money Market account.

As long as SCHD’s price remains far enough away from my price target, money will sit in the money market, and any additional cash I find will be moved to Charles Schwab and again into the Money Market Account.

We can see some real disadvantages to the Sweep Accounts rate, causing me to take additional steps to integrate an additional Money Market Account.

Moving cash around like piles of cards. — Stacking Piles Of Cards.

Not Advice, Just My Plan!

Now, this looks convoluted, and if it does, I mentioned what I was doing and hope we can initiate a discussion.

Did You Know About The Schwab Bank Sweep Rates?

Charles Schwab(Also my largest non-retirement account) is the only brokerage house I use that offers very low-bank rates in their Sweep Account. I will do this with my other accounts with Vanguard and Fidelity.

Am I Mad At My Charles Schwab Brokerage?

No, by no means.

My self-managed retirement accounts(pre-tax and post-tax) are with other brokerage houses, and those are on auto-pilot. So they auto-invest.

So, I reserve my Charles Schwab account for more active investment. This is my post-tax, non-retirement service. Hands-off/Auto-Pilot is part of my retirement plan. So, this account requires me to stay actively involved and updated with how my money works.

Therefore, parking money in an interest-only account isn’t active management, and if I do park money into these types of accounts, I have to actively try to figure out the best way to make my money work harder for me.

I like my Schwab Account; their services and tools will be part of my journey towards Financial Independence.

Do You Avoid Using A Schwab Sweep Account?

Please comment if you have a solution or a system you use for parked cash in your Schwab account. I love sharing ideas and experiences with other investors.