Between September 8 and December 7 of this year, Charles Schwab is changing the default cash feature on Schwab One brokerage accounts from Bank Sweep to something called Schwab One Interest. The yield does not move. As of July 27, 2026, both paid 0.01% APY. What changes is who owes you the money, and which safety net sits underneath it.
That is the part of a cash sweep account almost nobody reads, and it is the part your broker controls. You can change what your idle cash earns in about ten minutes. You cannot change the legal shape of the default, and the legal shape is what determines whether the cash is a bank deposit, a share of a mutual fund, or an IOU from a brokerage firm.
A cash sweep account is three products sharing one name
The SEC’s Office of Investor Education laid this out in an investor bulletin published May 14, 2025, and the taxonomy is worth memorizing because the marketing language never distinguishes between the three.
A money market fund sweep moves your cash into a mutual fund that holds short-term debt, often Treasury bills, and pays a dividend that tracks short-term rates. It is a fund, not a bank product, so there is no FDIC insurance behind it.
A bank sweep turns your cash into an actual deposit at one or more banks. Those banks are frequently affiliates of the brokerage firm itself. Deposits are FDIC insured up to $250,000 per depositor at each participating bank, so a program that spreads money across several banks can cover more than $250,000 in total.
The third option is that the cash never goes anywhere. It sits at the broker as what the industry calls a free credit balance, and the firm may or may not pay you anything on it.
The SEC bulletin notes that many firms set a bank sweep as the default and enroll you automatically if you never pick. Most people never pick.
Bank sweep rates are low by design, and the disclosure says so
Schwab’s Cash Features Program Disclosure Statement, dated January 2026, is unusually direct about this. Interest on the deposit accounts, it says, may be set at a rate “as low as possible consistent with prevailing market and business conditions.”
The same document explains the plumbing that makes that possible. Banks affiliated with Schwab pay Schwab a flat annual fee per account for administering the program. Unaffiliated banks pay a fee based on how many dollars get swept to them. And the affiliated banks, the disclosure says, factor those payments into their all-in cost of funds, which reduces the interest they are willing to pay. Your yield is the residual after the broker takes its share of the spread. It is the same economics as a bank’s net interest margin, just with an extra party in the middle.
Bank sweep rates are also tiered. Schwab’s program runs six tiers based on the cash balance swept out of your brokerage account, from under $25,000 up to $1 million and above. Buried in the same disclosure is a detail that makes the tiers less useful than they look: outside of jointly held accounts, you generally need to keep substantial uninsured deposits at Schwab Bank to qualify for the highest tiers. The best rate is reserved for balances that have run past the insurance limit.
FINRA made the same general point to investors back in August 2023, noting that many full-service brokerages offer only a bank sweep, that bank sweeps can pay far less than a money market fund, and that in a higher-rate environment the difference between two programs can run as high as five percentage points.
The SEC put a number on the gap: almost four percentage points
On January 17, 2025, the SEC announced settled charges against Wells Fargo Clearing Services, Wells Fargo Advisors Financial Network and Merrill Lynch over their cash sweep programs. The firms paid $60 million in combined civil penalties, split $28 million, $7 million and $25 million.
The specifics are instructive. According to the SEC’s orders, those firms offered bank deposit sweep programs as the only sweep option available to most advisory clients, and the firms or their affiliates set the rates those programs paid. During the period when interest rates were climbing, the yield difference between those bank sweeps and other available alternatives at times grew to almost four percentage points.
Note what the SEC actually charged. Not that paying a low rate is illegal, because it is not. The violation was a compliance failure: the firms had no reasonably designed policies for considering clients’ best interests when deciding which sweep options to offer. The SEC’s enforcement division added the detail that makes the arithmetic worse, which is that advisory clients often pay a fee on the assets sitting in these accounts.
When the sweep changes, the safety net changes with it
Which is what makes the Schwab transition this fall worth a close read, because on the surface nothing happens at all.
Under Schwab One Interest, according to the January 2026 disclosure, your free credit balance stays in your account as a direct obligation of Schwab, and Schwab pays interest on it at a tiered rate that the firm sets and can change daily. The disclosure then says the quiet part plainly: the feature is not a bank account, is not guaranteed by any bank, and is not insured by the FDIC.
What covers it instead is SIPC, which answers a different question than the FDIC does. The FDIC steps in when a bank fails and pays out the deposit. SIPC steps in when a brokerage firm fails and tries to return the securities and cash that should have been sitting in your account. FDIC insurance covers $250,000 per depositor per bank per ownership category, which is why multi-bank sweep programs exist at all. Schwab’s own multi-bank version deposits up to $249,000 at each of up to three program banks, then routes anything above that to Schwab Bank as the excess bank, where it sits without limit whether or not it is insured. SIPC, by contrast, advances up to $500,000 per customer with a $250,000 sublimit specifically for cash claims, and it protects you against the brokerage firm failing rather than against any investment loss.
So a customer whose cash was spread across three FDIC-insured banks this summer may be under a single $250,000 SIPC cash sublimit by December, at an identical 0.01%. Brokerage firm failures are rare and SIPC is real protection, so this is not a reason to panic. It is a reason to know which regime you are in, because the rate on your statement will not tell you.
Your broker has to give you 30 days’ written notice before changing the terms of a sweep program. That notice is the piece of mail everyone throws away.
What the difference is worth on a real balance
Take $30,000 of cash sitting in a default sweep paying 0.01% APY. Over a year that pays $3.00.
Now take the same $30,000 in Fidelity’s Government Money Market Fund, the fund Fidelity uses as a core position in eligible retail accounts. Its seven-day yield was 3.34% on September 9, 2026. At that rate, $30,000 produces roughly $1,002 over a year. The difference is about $999 for changing one setting.
Layer the advisory fee on top and it gets worse. At a 1% annual fee on a managed account, that same $30,000 of cash costs $300 a year in fees while generating $3 in interest, which leaves you $297 behind before inflation touches it.
Two honest caveats. A seven-day yield floats and is not a promise, so next year’s number will be different. And a money market fund has no FDIC insurance and no guaranteed share price, even though these funds are managed to hold a dollar. If the cash is money you truly cannot afford to see move, that tradeoff matters and a certificate of deposit or an insured savings account may fit better than either sweep.
Reading your own cash sweep account
Pull up your last brokerage statement and find the name of your cash feature, then find where that money physically goes: to a bank, into a fund, or nowhere at all. The rate is printed somewhere nearby, usually in smaller type than it deserves.
If the destination is a bank or the broker itself, look up what a money market fund at the same firm pays and decide whether the gap is worth closing. Sweep rates move down faster than they move up, which is the same asymmetry banks apply to savings accounts, so the gap tends to widen quietly rather than announce itself. A cash sweep account is a default someone else chose for you, and defaults are only as good as the last time you looked at them.