topic Re: "Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits. in Credit in the News

"Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

IsambardPrince — Sat, 31 Aug 2024 03:16:11 GMT

"Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

Well, you know, like everything you have on deposit with the big banks, a cash sweep account sweeps as much of your cash into their pocket as possible.

They used to have a rule in banking called 3-6-3. You'd pay a customer 3% on their deposits, loan them out at 6%, and be on the golf course by 3 PM.

Now the big ones pay 0.01% on most deposits, loan it out at 30%, and laugh at their customers on both ends for putting up with it.

"The core complaint from customers who are upset about the sweep accounts is that the lenders and brokers are profiting to an unreasonable degree from their cash balances while the customers are getting paltry sums."

Yeah, you put $10,000 into a MMSA or CD online, you'll have about $500 interest after a year.

You put it in Chase Bank, they'll give you $1.

It would be better if Chase or Wells Fargo or BofA just slapped you in the face because at least you'd notice.

People depositing their money in the big banks have nearly missed all the opportunity to earn thousands on bank interest in a few decent years for the first time since almost 25 years ago, because it doesn't happen at the big boys.

Re: "Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

markbeiser — Sat, 31 Aug 2024 09:03:05 GMT

If you are leaving a large amount of cash sitting in an investment account, and not allocating it to investments that yield a return, that's on you!
At least the cash sweep protects the money by sweeping it into an FDIC insured account.

I do all of my banking through my CMA Edge account with Merrill. The money I have that is not in stocks and ETFs, and is not needed to pay immediate bills, gets split up in a variety of money markets.
The cash left available for paying bills gets automatically swept into an FDIC insured account, and remains entirely liquid, so no delays in its availability.
While I'd love to get more than 0.02% interest on it, I don't get worked up over missing out on a couple of bucks a month, at most.

Re: "Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

IsambardPrince — Sat, 31 Aug 2024 21:52:15 GMT

@markbeiser wrote:
If you are leaving a large amount of cash sitting in an investment account, and not allocating it to investments that yield a return, that's on you!
At least the cash sweep protects the money by sweeping it into an FDIC insured account.

I do all of my banking through my CMA Edge account with Merrill. The money I have that is not in stocks and ETFs, and is not needed to pay immediate bills, gets split up in a variety of money markets.
The cash left available for paying bills gets automatically swept into an FDIC insured account, and remains entirely liquid, so no delays in its availability.
While I'd love to get more than 0.02% interest on it, I don't get worked up over missing out on a couple of bucks a month, at most.

Ally Invest pays 4.2% on the cash buffer at least if you choose the no fee option, but for most people, they'll miss out on returns by setting 30% aside as cash, more than the 0.30% annual fee. It's not FDIC insured so you could lose it if the bank fails, but I don't see a huge risk of that happening. They are heavily exposed to auto loans at this bank, but unless every auto loan in the country starts going bad at the same time, they probably won't fail.

That comes out to 30 cents per year on every hundred dollars you have invested. Most people are not good with investments and diversification.

If you want to go all stocks and avoid all fees, you could simply just buy shares in an S&P 500 fund. High fee investment advice is basically a thing of the past, but most people don't know it yet.

As for the cash sweep account, all it does at a big bank is cost you money and pad the banks reserves on money that you lose to inflation.

Re: "Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

markbeiser — Sat, 31 Aug 2024 23:37:01 GMT

@IsambardPrince wrote:
As for the cash sweep account, all it does at a big bank is cost you money and pad the banks reserves on money that you lose to inflation.

It only "costs" me the potential interest on a balance that fluctuates between a few hundred to a couple of thousand dollars at a time.
The institutional class money market mutual funds I have access to with low minimum investments through Merrill, along with Platinum Honors status with BoA, is worth way more than a little extra interest on my monthly bill paying money.
My CMA and Roth IRA accounts are self directed, no fees ever.

Granted, not everyone is willing to take the time to learn how to manage their investment and retirement accounts themselves, so would benefit from something simple.

Re: "Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

Tdatb64 — Tue, 10 Sep 2024 10:50:51 GMT

@IsambardPrince wrote:
"Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

Well, you know, like everything you have on deposit with the big banks, a cash sweep account sweeps as much of your cash into their pocket as possible.

They used to have a rule in banking called 3-6-3. You'd pay a customer 3% on their deposits, loan them out at 6%, and be on the golf course by 3 PM.

Now the big ones pay 0.01% on most deposits, loan it out at 30%, and laugh at their customers on both ends for putting up with it.

"The core complaint from customers who are upset about the sweep accounts is that the lenders and brokers are profiting to an unreasonable degree from their cash balances while the customers are getting paltry sums."

Yeah, you put $10,000 into a MMSA or CD online, you'll have about $500 interest after a year.

You put it in Chase Bank, they'll give you $1.

It would be better if Chase or Wells Fargo or BofA just slapped you in the face because at least you'd notice.

People depositing their money in the big banks have nearly missed all the opportunity to earn thousands on bank interest in a few decent years for the first time since almost 25 years ago, because it doesn't happen at the big boys.

Yeah, it's criminal how little banks pay in interest these days and how much they **bleep** customers with fees. I opened my first savings account in 1972 but don't remember the interest rate (I was 7) but by 1978 or '79 I was getting 7.75% while some other banks were paying as much as 8.5% and there were no fees to worry about if you didn't have such 'n' such minimum balance or had a period of inactivity, etc. If you brought a check into the bank it was drawn on to cash, even without an account there yourself, they simply cashed it. I did that about 7 years ago at Fifth Third, (which is who now owns my original bank, 'though I haven't had that account in decades,) and they charged me $35 to cash the @$2,200 check drawn from one of their accounts.

Remember about 20 years ago when one of the bigger banks started charging $2 to use an actual human teller for deposits or withdrawals (since "you can use the ATM for those")? Others were ready to jump on the bandwagon but the backlash was so bad that fee plan died rather quickly.

Thing is, if people just lay down & take it when they first institute such you-know-what it quickly becomes accepted as "normal" and, while some few complain, it never gets reversed. Basically it amounts to "we screwed ourselves by allowing them to get away with screwing us in the first place". Banks will happily make money off our money and pay us a pittance for the use of our money because we ALLOW them to.

If the vast majority abandoned the banks and moved to credit unions we might see banks enact more equitable policies - or we might just see credit unions start to screw us like the banks do. We've let it get too far and I don't think there's any going back.

Re: "Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

TrapLine — Tue, 10 Sep 2024 21:06:15 GMT

@Tdatb64 wrote:
@IsambardPrince wrote:
"Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

Well, you know, like everything you have on deposit with the big banks, a cash sweep account sweeps as much of your cash into their pocket as possible.

They used to have a rule in banking called 3-6-3. You'd pay a customer 3% on their deposits, loan them out at 6%, and be on the golf course by 3 PM.

Now the big ones pay 0.01% on most deposits, loan it out at 30%, and laugh at their customers on both ends for putting up with it.

"The core complaint from customers who are upset about the sweep accounts is that the lenders and brokers are profiting to an unreasonable degree from their cash balances while the customers are getting paltry sums."

Yeah, you put $10,000 into a MMSA or CD online, you'll have about $500 interest after a year.

You put it in Chase Bank, they'll give you $1.

It would be better if Chase or Wells Fargo or BofA just slapped you in the face because at least you'd notice.

People depositing their money in the big banks have nearly missed all the opportunity to earn thousands on bank interest in a few decent years for the first time since almost 25 years ago, because it doesn't happen at the big boys.
Yeah, it's criminal how little banks pay in interest these days and how much they **bleep** customers with fees. I opened my first savings account in 1972 but don't remember the interest rate (I was 7) but by 1978 or '79 I was getting 7.75% while some other banks were paying as much as 8.5% and there were no fees to worry about if you didn't have such 'n' such minimum balance or had a period of inactivity, etc. If you brought a check into the bank it was drawn on to cash, even without an account there yourself, they simply cashed it. I did that about 7 years ago at Fifth Third, (which is who now owns my original bank, 'though I haven't had that account in decades,) and they charged me $35 to cash the @$2,200 check drawn from one of their accounts.

Remember about 20 years ago when one of the bigger banks started charging $2 to use an actual human teller for deposits or withdrawals (since "you can use the ATM for those")? Others were ready to jump on the bandwagon but the backlash was so bad that fee plan died rather quickly.

Thing is, if people just lay down & take it when they first institute such you-know-what it quickly becomes accepted as "normal" and, while some few complain, it never gets reversed. Basically it amounts to "we screwed ourselves by allowing them to get away with screwing us in the first place". Banks will happily make money off our money and pay us a pittance for the use of our money because we ALLOW them to.

If the vast majority abandoned the banks and moved to credit unions we might see banks enact more equitable policies - or we might just see credit unions start to screw us like the banks do. We've let it get too far and I don't think there's any going back.

FYI ... back in your early years there were minimum mandated savings rates. For a bank (focus was on general banking) it was 5% and for a savings & loan (legal focus was on home loans) it was 5.25%. There was no flexibility. Will add the financials had to recoup the funds to pay so loan rates were not as competitive as we have seen in the last few years. In fact, back in the 1970s my part of the country had some home loans going from 10% to 17.75%. Fortunately I snagged a VA Home Loan with points for 7.75% (due to paying points up front - points were running 1 to 5 generally) and will say those were NOT the good ole days.

Re: "Cash Sweep Accounts" at Big Banks Face Regulatory Pressure, Lawsuits.

markbeiser — Tue, 10 Sep 2024 22:54:13 GMT

@TrapLine wrote:
In fact, back in the 1970s my part of the country had some home loans going from 10% to 17.75%. Fortunately I snagged a VA Home Loan with points for 7.75% (due to paying points up front - points were running 1 to 5 generally) and will say those were NOT the good ole days.

Inflation in the late 70's was brutal there for a while. Grabbing something off the shelf at the grocery store before the guy going down the isle changing the prices got to it was a victory to celebrate!🤣
The high mortgage rates were less than ideal, but at least the cost of housing vs. hosehold income was way lower than it is now in most areas of the country.
Because of the housing shortage in the DFW area of Texas, houses in my neighborhood 15 minutes from DFW airport are going for 2.5 to 3x what they were going for when I bought in 2007.