Brokers Bank on Your Cash, but Some Are Breaking From the Pack

Fidelity Investments said it has sweetened the deal for customers holding cash there, the latest salvo in the price war playing out among brokerages competing for clients’ assets.

The Boston-based firm, which manages about $2.8 trillion in assets, said Wednesday that it is automatically sweeping cash in new brokerage and retirement accounts into a money-market fund yielding 1.91% annually. That compares to the 0.2% national average yield on money funds and 0.09% on savings account balances, according to S&P Global Market Intelligence.

Raking uninvested client cash from brokerage accounts into banking products is a common practice in the brokerage and banking world.

Cash sweeps, as they are known, are lucrative because firms typically pay clients much less in interest than the firms earn on the cash. Investors with relatively small cash balances in their brokerage accounts aren’t always motivated to move the money, but those dollars add up to billions at big brokerage businesses.

Fidelity said it started automatically sweeping cash in new accounts into the higher-yielding money-market fund in May. Existing customers can opt to have their cash swept into the higher-yielding fund, the company said.

Offering higher yields on cash has become a popular tactic to attract customers. Automated advisers Betterment and Wealthfront Inc., for example, are offering more on cash by sweeping it to partner banks, and some banks including

Goldman Sachs Group


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Inc.’s Marcus has been paying relatively high interest on savings. But Fidelity’s move is notable given how the biggest brokerage firms have been treating customers’ cash.

“Many of the incumbent brokerages have been going in the other direction,” said Devin Ryan, brokerage analyst at JMP Securities LLC. Customers typically have to opt out of low-yielding bank products by buying money funds or other products. “What Fidelity is doing is removing that step,” he said.

As brokerages try to make up for the revenue they are giving up on trading fees and financial advice in order to woo customers’ assets, cash has become more crucial to their profitability. At Charles Schwab Corp., its bank made more than half of the company’s overall revenue of $10.13 billion in 2018, up from 29% of revenue in 2009. In recent years, Schwab began sweeping uninvested client cash into low-yielding brokerage products.

Fidelity’s move comes as investors, nervous about slowing economic growth and trade tensions with China, are shifting more money to havens and cash stockpiles are growing. Money-market fund assets surged 30% in July to $3.62 trillion, the highest since March 2009, according to Crane Data.

Everyday investors have been driving that increase into money funds, said Pete Crane, chief executive at Crane Data, a firm that tracks money-market and mutual-fund flows. “A big portion of that [rise] is a quiet revolt against ultralow yields,” he said. “It was just a matter of time before cash became a battleground, too.”

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

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