Updated May 2024 with refreshed rates, new Preferred Deposit online initial deposit option, lower $1 minimum on money market funds. Merrill Edge is a self-directed brokerage arm of Bank of America and Merrill Lynch. They are a decent broker overall, but honestly the only reason I keep my account open with them is to qualify for their , which allows me an effective 2.6% flat cash back on “everything” credit card (offsets any travel purchase) as long as I maintain a Merrill Edge brokerage account with at least a $100,000 balance (even if just buy-and-hold Vanguard ETFs).
Unfortunately, the interest rate paid on their default cash sweep option is horrendous. They seem to have learned from Bank of America that lots of people don’t pay attention and they can earn a lot of easy profits paying 0.01% APY when you can earn 5%. Not very customer-friendly, but “net interest margin” is a huge source of profits. However, if you are motivated enough (as my readers tend to be), then you can stay at Merrill Edge and still do a lot better. Here is a summary of all the options available if you do want to keep your cash there.
Manually sweep your idle cash out. If you have a BofA checking account, you can perform instant transfers from your Merrill Edge cash balance into your BofA account. Then I simply initiate (“pull”) money out via a . This is a bit tedious, but most of my cash shows up during predictable periods (quarterly dividends).
Current rate sheet. You can always check current interest rates by scrolling to the bottom of any Merrill Edge page and clicking on the blue link “Deposit Account & Money Fund Rates”. Right now it links to .
Default cash sweep. Your default cash sweep interest rate is the one for “Merrill Lynch Bank Deposit Program – Tier 1 (0.01% APY. This is a FDIC-insured cash sweep. The bad news is that you can’t change it to automatically sweep to anything else right now. The good news is that there are some other options available if you are willing to do a bit of work.
Preferred Deposit. The first page of the rate PDF only includes FDIC-insured options. You’ll note the highest rate is something called “Preferred Deposit”. As of 5/15/24, it is a much more competitive 4.71% APY. In order to use this option, you must open it with at least $100,000 in cash. However, once you establish that $100,000 position, you can then go below that amount while still maintaining future access (subsequent transactions have a $1,000 minimum). However, this is not a sweep (nothing goes in or out automatically). Here is a .
To initiate this option, you can either call them up at 877.653.4732 or place an order online. To find this option the website, go to “Research” > “Mutual Funds”, and then “Cash Management Solutions” in the secondary menu. If you scroll all the way to the bottom, you should find the option to deposit. See screenshot below. Thanks to reader Bob for the tip.
This is a non-sweep product – an order must be entered for all transactions (deposits and withdrawals). Please contact your representative for additional information.
Treasury bills (auction and secondary). You can buy US Treasury bills and bonds directly through the fixed income desk. You can place either an auction order for a “new” T-Bill or buy them on the secondary market. Technically, there is no commission for online orders and a $29.95 fee per broker-assisted order. However, they don’t allow online orders for new auctions, so effectively it costs $29.95 per auction order. You can buy online on the secondary market with no commission, but there will be bid/ask spreads and possible quantity minimums based on the available inventory.
Money market mutual funds. If you scroll down to the second page of the rate PDF, you will find a list of money market mutual funds. These are not FDIC-insured, but they are still regulated by the SEC and required to hold very safe investments of a very short duration.
You can place trades on money market mutual funds online. You must select “Mutual Funds” from the “Trade” Tab drop down menu, and then enter the fund symbol you are interested in. Many of these are institutional class shares, but Merrill now allows access with a minimum investment of only $1.00 (used to be higher). Here are some examples.
- BlackRock Liquid Federal Trust Fund – Institutional Class (*). SEC yield of 5.17% as of 5/15/24.
- BlackRock Liquidity Funds: TempCash Fund – Institutional Class (). SEC yield of 5.32% as of 5/15/24.
- BlackRock Liquidity Funds: Treasury Trust – Institutional Class (*). SEC yield of 5.18% as of 5/15/24.
* I chose these funds also because they hold a high percentage of US Treasury bonds, and interest on US government obligations is tax-exempt from state and local incomes taxes. The percentage varies, but in 2023 it was 98.65% for TFFXX and 94.07% exempt for TTTXX (). This can increase your tax-effective yield significantly.
Again, these money market mutual funds can’t be set as an automatic sweep; you must manually move money in and out of the product. This also means that if you want to for example buy new shares of stock, you would need to first put in an order to sell your money market mutual fund shares into cash (in order to have the funds available to buy that stock). The system won’t be able to automatically sell your fund. You’ll have to coordinate settlement times if buying stocks and/or ETFs. Finally, note that these options are for taxable brokerage accounts. IRAs may have more limited options. There are also some additional federal and/or state tax-exempt municipal money market fund options available.
Buying an outside ETF. You can also use your free stock trades to buy an ETF that is close to cash (ultra-short duration, high-quality bonds). These will not be FDIC-insured and carry a bit of duration risk, but if your ETF holds T-Bills then those are also fully backed by the US government. Here are a few ideas (with rates as of 5/15/24):
- The iShares 0-3 Month Treasury Bond ETF () has a 5.27% SEC yield and effective duration of 0.17 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF () has a 5.20% SEC yield and effective duration of 0.07 years.
Bottom line. Merrill Edge has a default cash sweep option with a very low interest rate. If you have significant assets with them, you might want to call your rep and tell them your opinion and try to spark a change. Otherwise, I detail your available options if you want to keep your cash at Merrill Edge and earn a much higher interest rate.
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