Cash Sweep Accounts vs. Money Market Funds, HYSAs & CDs

Cash sweep accounts, money market funds, high-yield savings accounts and certificates of deposit (CDs) all offer interest or dividends on your cash, but vary in interest rates and how easy it is to access your money.

Here’s how they compare.

A cash sweep account is an option for uninvested cash in your investment accounts. If you have cash deposits, cash dividends or cash from an investment sale that hasn’t been reinvested yet, your investment firm can transfer it to a spot where it earns interest.

What investment firms do with this money varies. Commonly, cash might be moved to a money market fund, or it might be put into interest-earning deposit accounts at other banks. In some cases, an investment firm might keep the cash on deposit and pay some amount of interest on it.

Earnings on uninvested cash can vary widely, depending on the investment firm and the cash sweep program you opt into, but the yield may be lower than what you’d get by depositing directly into a high-yield savings account. Insurance on these accounts also varies, depending on where the cash is swept.

A money market fund is a type of mutual fund that invests in high-quality short-term options, like Treasury bills and cash equivalents. Money market funds are considered relatively low risk (it’s possible to lose money but unlikely), and you generally invest in them through a brokerage account.

Money market funds aren’t FDIC-insured, and because you access them through a brokerage account, it may take a little longer to get to your cash if you need it. Yields are typically lower than other mutual funds but higher than traditional savings accounts, and they vary by broker. Money market funds charge fees, so it’s a good idea to understand all the terms.

High-yield savings accounts offer higher interest than savings accounts at traditional banks. Many banks offering these higher rates are online, and if they’re FDIC-insured, they offer the same protections for your money as brick-and-mortar banks.

If you can get 4% or more (or close to it), you’ll handily beat the national average interest rate for savings accounts, which currently is 0.38%.

Like most savings accounts, HYSAs typically don’t offer access to funds with check-writing or debit cards, but cash can be transferred out as needed, so these accounts are considered liquid.

A certificate of deposit (CD) is a short-term savings account that allows you to lock in an interest rate for a certain time period — i.e., six to 12 months, with some terms as long as five years.

The trade-off is that your money is also locked in; you’ll pay a penalty if you withdraw early.

When CD interest rates are higher than other savings accounts, this can be an easy way to earn some interest. But when interest rates match what you’ll find in other short-term places, it may not be worth committing. Currently, CD rates are only slightly higher than many HYSA offerings.