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Comment by anonu | Hacker News Reader

Schwab would rather you have cash in your account than be invested in securities. This is how their cash sweep works.

The article is educational and generally stands up to the research on the topic. It is designed to build trust with clients so they invest in Schwab.

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> Schwab would rather you have cash in your account than be invested in securities

Compared to IBKR which gives "benchmark - 0.5%" on your NAV in USD, what does Schwab give for your USD sitting idle?

Cash sweep in Schwab is like 0.5%, it's nothing. But this is how they make their money, turning around and lending at 8%.

But you can just as easily buy a short duration Treasury ETF yielding 5%+ or a CD.

Or even Schwab MMF's, which are reasonable. It's mostly just the default that's terrible on return.

It's not an automatic sweep, but anyone holding cash at Schwab moves it to something like SWVXX [1] paying ~5% right now.

[1] https://www.schwabassetmanagement.com/products/swvxx

Beware that such a mutual fund buy transaction closes at end of day. A sale of a stock or ETF closes 2-3 days in the future. So if you place both orders concurrently in your margin account, you may find you've borrowed from Schwab for those 2-3 days on margin, at a rate of ~10%. Schwab's order screen will not warn you of this in advance.

What happens if you make this mistake in a "cash account" i.e. no margin allowed I do not know and hope not to find out by means of usual accidental carelessness.

An alternative to SWVXX is VUSB, which trades with standard ETF timing.

Schwab gives a similar return, they don't offer any high yield savings

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