In the latest battle among brokerages, Fidelity, Charles Schwab and Vanguard have been offering unusually high yields of around 2% on cash. But investors should be careful to figure out what’s really the best deal.

Fidelity has started offering the ­Fidelity Government Money Market Fund as its “sweep” account, providing a 1.83% yield recently. That means when you sell an investment or deposit money, the cash is automatically swept into the fund. That applies to new brokerage customers at Fidelity and to new and most existing retirement ­account holders but not automatically to existing brokerage customers. Their default sweep account is Fidelity Cash Management, which recently yielded 1.08%. However, customers can request the higher-yielding fund be designated as the sweep account instead. The Fidelity yields are much higher than the recent average of 0.25% among all sweep accounts at brokerages. 

Don’t be fooled by Schwab’s response to Fidelity’s push. Schwab began promoting its Schwab Government Money Market Fund, recently yielding 1.86%, even though it is not available as a sweep account. Schwab’s default sweep accounts recently yielded as low as 0.18%. Each time a customer wants to shift the cash from those accounts to the higher-paying account, the customer must contact Schwab.

Despite the promotions, neither Fidelity nor Schwab is offering the highest yields on cash accounts. Vanguard has long offered the Vanguard Federal Money Market Fund as its default sweep account, recently yielding 2.14%. Some online banks and brokerages, such as Betterment and Wealthfront, offer 2.3% or more.

What to do: Ask your brokerage what are the highest-yielding cash accounts…whether one can be designated as the sweep account…and what rules and restrictions apply.

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