How Brokers Made $10.4 Billion From Your Uninvested Cash
Charles Schwab's single largest revenue source isn't trading fees. It's the spread between what they pay you on cash (often under 1%) and what they earn (4%+). This is the story brokers don't want you to understand.
Schwab's net interest revenue in 2024
More than any other revenue source—including trading, asset management, or advisory fees
How the Cash Sweep Scam Works
When you have uninvested cash in your brokerage account, it doesn't just sit there. Your broker "sweeps" it into an account where they can invest it—often paying you a fraction of what they earn.
Here's the typical flow:
- You deposit cash or sell stock, leaving $10,000 uninvested
- Your broker sweeps it to their bank or a money market fund
- They earn 4-5% investing that cash in Treasury bills or other safe instruments
- They pay you 0.5% (or less)
- They pocket the ~4% difference
On $10,000, that's $400/year going to your broker instead of you. Scale that across millions of accounts and billions in cash, and you get Schwab's $10.4 billion windfall.
The Numbers: What Each Broker Pays
| Broker | Cash APY | Your Earnings on $50K | What You're Missing* |
|---|---|---|---|
| Schwab (default sweep) | 0.45% | $225 | -$1,775 |
| E*TRADE (default) | 0.55% | $275 | -$1,725 |
| Fidelity (SPAXX) | ~2.7% | $1,350 | -$650 |
| Robinhood Gold | 3.25% | $1,625 | -$375 |
| Public.com | 3.3% | $1,650 | -$350 |
| Webull Premium | 3.85% | $1,925 | -$75 |
| High-yield savings (benchmark) | 4.0% | $2,000 | — |
*Compared to a 4% high-yield savings account
Why This Matters More Than You Think
"I don't keep much cash in my brokerage account," you might say. But consider:
- Dividends accumulate: Those quarterly payments sit as cash until you reinvest
- Sale proceeds: When you sell positions, the cash sits there
- Waiting to deploy: Many investors keep cash reserves for opportunities
- Retirement distributions: IRAs often hold cash for planned withdrawals
The average retail investor keeps 10-15% of their portfolio in cash. On a $500,000 portfolio, that's $50,000-$75,000 earning almost nothing at Schwab while Schwab earns 4%.
The Schwab Cash Sorting Problem
In 2024, Schwab faced a crisis when rising interest rates exposed this business model. Customers started moving cash out of Schwab's low-yielding sweep accounts into money market funds paying 4-5%. Schwab called this "cash sorting."
The result? Schwab's stock tanked as investors realized how dependent they were on this spread income. But instead of paying customers more, Schwab focused on "retaining" cash through behavioral nudges and product positioning.
Translation: They're betting most customers are too lazy or uninformed to move their cash.
How to Fight Back
Option 1: Choose a High-Yield Broker
Some brokers actually compete on cash yields:
- Webull Premium: 3.85% APY
- Public.com: 3.3% APY
- Robinhood Gold: 3.25% APY
- Moomoo: 8.1% promo (3 months), then 4.1%
Option 2: Opt Into Money Market Funds
Most brokers offer money market fund options that pay more than their default sweep. At Fidelity, you can use SPAXX (Government Money Market) which currently pays ~4.2%. At Schwab, you can manually buy SWVXX.
The catch: this often requires manual action, and brokers don't advertise it.
Option 3: Move Cash to High-Yield Savings
If your broker pays poorly and you have significant cash, move it to a high-yield savings account (4%+ at many online banks). Transfer it back when you're ready to invest.
Yes, it's inconvenient. That's exactly what brokers are counting on.
The Bigger Picture
This isn't about demonizing brokers—they need to make money somehow. But the asymmetry is stunning:
- Schwab earned $10.4 billion in net interest revenue
- Their customers collectively lost billions in potential interest
- Most customers have no idea this is happening
Commission-free trading isn't free. You're paying with your cash yield. The question is whether that trade-off makes sense for you.
What We Think
We're not saying Schwab is evil. We're saying you should understand the deal you're getting.
If Schwab's research, tools, and service are worth $1,000+/year to you in forgone interest, that's a valid choice. But make it consciously. Don't let inertia cost you thousands.
The brokers paying 3%+ on cash are making a different choice: they're competing for your business by actually sharing the economics. That's worth rewarding.