Cash Sweep APY
The Formal Definition
An automated feature that transfers uninvested brokerage cash into interest-bearing bank deposits or money market funds.
Yield Gap = Benchmark Fed Rate - Broker Sweep APY
Cole Barrett's Reality Check
The Unvarnished Bottom Line"Cash sweeps are Wall Street's favorite margin racket. When central banks set rates at 5%, and your broker defaults your cash into a 0.45% bank sweep, they aren't 'managing' your cash—they're lending it out at 5.25% and pocketing the 4.8% spread."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: $50,000 uninvested cash held over 5 years
| Execution Metric | Automatic High-Yield Sweep (Fidelity / Trading 212 @ 4.2%) | Default Bank Sweep (Schwab / Legacy @ 0.45%) |
|---|---|---|
| Fee / Rate | Auto Money Market | Low Retail Sweep |
| Spread / Buffer | 5-Yr Interest: +$11,420 | 5-Yr Interest: +$1,135 |
| Execution / Status | End Cash: $61,420 | End Cash: $51,135 |
| Total Cost / Result | Outpaced inflation | Missed $10,285 in yield |
How Brokers Weaponize This Term
Brokers hide behind fine print, requiring you to manually purchase specific money market funds (like SWVXX or SPAXX) rather than automatically sweeping idle cash into high-yield instruments.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers / Fidelity: Automatic benchmark-linked cash interest without manual lockups.
Read Audit →Frequently Asked Questions
Is cash in a sweep program FDIC insured?
Bank sweep cash is FDIC-insured up to statutory limits, whereas money market mutual funds are protected by SIPC.
Why don't all brokers sweep automatically to money funds?
Net Interest Margin (NIM) on uninvested cash is the single largest revenue driver for most zero-commission retail brokers.