How to Open Cash Management Brokerage Accounts

Brokerage accounts offer various cash management options.

For cash management purposes, brokerages offer sweep accounts. Brokerages automatically "sweep" cash balances into money market deposit accounts to earn interest, until you elect to invest the money into stocks and bonds. Additionally, brokerages provide access to other cash management products that can be bought through financial markets. These products include certificates of deposit, municipal bonds and government debt. Begin your search for a cash management brokerage account with a financial self-assessment, before you evaluate competing firms.

Instructions

Brokerage Comparison

1. Organize recent banking and financial statements to calculate the amount of cash you have to fund your brokerage account. You should also budget a monthly amount that you can deposit into your cash management account.

2. Decide whether a full-service, or discount brokerage best matches your objectives. Financial advisers who provide cash management recommendations staff full-service brokerages. Discount brokers, however, offer no investment advice. Discount firms charge low commissions and offer online trading capabilities.

3. Research brokerage account offerings at your current banks. For your convenience, commercial banks typically offer in-house brokerage accounts that can be linked to your checking and savings account. This allows you to easily transfer funds between accounts.

4. Open and fund the brokerage account of your choice with the correct paperwork. Discount firms will request basic identification information. Full-service firms, however, may require you to complete a financial inventory of your current assets, liabilities and financial goals. This data helps financial advisers determine investment recommendations.

5. Track interest rate trends related to various cash management products. From there, you may elect to keep funds in the brokerage sweep account, or purchase short-term securities.

Accounting

1. Analyze information related to your brokerage account at least once per week, or after every transaction. Be sure to take note of account balances, deposits, withdrawals and interest payments received. Doing so enables you to track your financial progress.

2. Reconcile the monthly brokerage account statements against your banking statements to verify that money has been correctly transferred between the accounts. You can contest any discrepancy with management. This verification process also helps avoid the risk of identity theft, where criminals steal your personal information to execute unauthorized transfers.

3. Review your 1099-INT form at tax season. The brokerage prepares the 1099-INT to summarize any interest payments received during the tax year. Use this information to file your taxes.

Tips & Warnings

• To save commission costs, many cash management products can be purchased directly through their issuer. For example, the Treasury Direct program allows savers to buy treasury securities directly from the United States government.

• Because of their relatively low returns, cash management products are susceptible to inflationary risks. Inflation erodes long-term purchasing power over time.

References

• SEC: Check Out Brokers and Investment Advisers
• Investopedia: Brokerage Account - Definition
• Investopedia: Online Trading
• Investopedia: Cash Management

Resources

• Treasury Direct: My Accounts
• Investopedia: Inflation
• Investopedia: Sweep Account