Yes, brokerage accounts generally do earn interest on uninvested cash, but how much depends almost entirely on your firm and whether you take any action. As of early 2026, some brokerages pay 0% on idle cash by default while others automatically sweep it into accounts yielding roughly 3% to 4%. If the default rate disappoints, you can usually push the yield higher by buying a money market fund or Treasury bills directly through the same platform.
How the Default Sweep Works
When cash sits in your account without being invested, most firms automatically move it at the end of each business day into an interest-bearing vehicle, usually a bank deposit account at one or more partner banks. You don’t trigger this; it happens in the background. The cash stays available for trading or withdrawal at any time, even though it technically sits at an external bank.
These sweep arrangements fall under SEC Rule 15c3-3, which requires broker-dealers to safeguard customer funds rather than commingling them with the firm’s own assets. Routing cash into insured bank deposits reduces the brokerage’s risk of holding large client balances on its own books and gives you FDIC coverage on the deposited amounts.
The rates these programs pay deserve real scrutiny because the spread across firms is enormous. Some brokerages pay nothing on sweep balances unless you subscribe to a premium membership. Others pay above 3% with no strings. A few tier their rates based on your cash balance, paying more once you cross a threshold like $10,000. Before you assume your idle cash is working for you, check your firm’s current sweep rate in your account settings or on its website.
What You Actually Keep
The rate you see advertised is rarely the rate you keep. A few layers of cost quietly erode what hits your account.
If your account charges an asset-based advisory fee, that fee typically applies to your total account value, cash included. Holding $50,000 in cash in an account with a 1% advisory fee costs you $500 a year, which can wipe out most or all of the interest earned through the sweep. The SEC’s investor education office specifically warns investors to understand how account minimums, fees, and cash balances interact before assuming a sweep is delivering meaningful income.1Investor.gov. Cash Sweep Programs for Uninvested Cash in Your Investment Accounts – Investor Bulletin
There is also a less visible cost: the spread between what partner banks pay the brokerage and what the brokerage passes along to you. Firms have no obligation to share the full bank rate, and some keep a substantial portion for themselves. That is why default sweep rates at certain firms sit below 1% even when the federal funds rate target is 3.50% to 3.75%.2The Federal Reserve. The Fed Explained – FOMC’s Target Federal Funds Rate or Range
Earning More Than the Default Rate
If your sweep rate disappoints, you don’t have to accept it. Most platforms let you buy money market mutual funds or short-term Treasury securities that typically yield more than default sweeps. These are active purchases, so they appear as distinct holdings in your portfolio rather than running automatically.
Money Market Funds
Money market funds invest in short-term debt like government securities and commercial paper, passing the interest through to shareholders. As of early 2026, yields at major brokerages generally range from roughly 2.75% to 3.5%, depending on the fund and share class.
Expense ratios eat into those returns. Fees typically run between about 0.14% and 0.95% annually. A fund advertising a 3.4% gross yield with a 0.40% expense ratio actually delivers around 3.0% to you. Compare net yields, not headline numbers.
Treasury Bills
Treasury bills are issued by the U.S. government for terms ranging from four weeks to one year and are backed by the full faith and credit of the federal government. You can buy them directly through most brokerage platforms at auction or on the secondary market. Their big draw is a tax advantage: interest is subject to federal income tax but exempt from all state and local income taxes under federal law.3Office of the Law Revision Counsel. 31 USC 3124 – Exemption From Taxation For someone in a high-tax state like California or New York, that exemption can make a T-bill’s effective after-tax yield noticeably better than a money market fund paying the same nominal rate.
Taxes on Brokerage Interest
Interest earned in a taxable brokerage account is taxed as ordinary income, not as capital gains. It gets stacked on top of your wages and taxed at whatever federal bracket applies. Your brokerage will issue IRS Form 1099-INT if you earned $10 or more in interest during the year, and even if you earn less and get no form, you’re still required to report the income.4Internal Revenue Service. About Form 1099-INT, Interest Income
Higher earners face an additional 3.8% net investment income tax on interest and other investment income. The surtax kicks in when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. Those thresholds are not indexed for inflation, so more taxpayers cross them each year. Someone earning $220,000 with $5,000 in brokerage interest would owe the 3.8% surtax on that interest, pushing the effective federal tax rate above 27% before state taxes even enter the picture.5Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
State income tax rates on interest income range from 0% in the eight states with no income tax up to 13.3% in the highest-tax states. Treasury bill interest is fully exempt from state and local income taxes, which is why T-bills get more attractive the higher your state tax rate climbs.6Internal Revenue Service. Topic No. 403, Interest Received Municipal money market funds offer another tax-efficient option: they invest in short-term municipal debt, and the interest is generally exempt from federal tax. If the fund holds bonds issued by your home state, you may also avoid state tax. The trade-off is that municipal money market funds typically yield less than their taxable counterparts.
How Your Account Type Changes the Picture
Not every brokerage account handles interest the same way.
Standard taxable accounts have the fewest restrictions. Sweeps activate automatically, you can buy any money market fund or Treasury security the platform offers, and all interest is taxable in the year earned.
IRAs and other retirement accounts can also hold cash that earns interest through sweeps or money market funds, but the tax treatment is different. In a traditional IRA, interest grows tax-deferred until you withdraw funds in retirement. In a Roth IRA, interest grows tax-free and qualified withdrawals are also tax-free, which makes the net investment income tax and state income tax irrelevant on interest earned inside the account. The trade-off is contribution limits and early withdrawal penalties that don’t apply to taxable accounts.
Margin accounts flip the math entirely if you carry a debit balance. Margin loan rates as of early 2026 run roughly 9.9% to 10.9% depending on the loan amount, which dwarfs anything a sweep or money market fund pays. If you’re paying 10% to borrow and earning 3% on idle cash, you’re not earning interest in any practical sense.
What Protects the Cash
Two different safety nets apply, and they cover different things.
Cash swept to partner banks gets FDIC insurance up to $250,000 per depositor, per bank, per ownership category. If a sweep program spreads your cash across ten banks, you could have up to $2.5 million in FDIC coverage on a single-owner account, and joint accounts effectively double the per-bank limit for a couple. The critical detail: coverage at each partner bank combines with any other deposits you already hold at that same bank, so a separate savings account at a sweep partner bank reduces how much of your sweep balance is actually insured there.7FDIC.gov. Deposit Insurance – Understanding Deposit Insurance
Pass-through insurance, the technical term for FDIC coverage flowing through a broker to underlying bank accounts, requires the broker to maintain proper records identifying each customer’s ownership interest. If those records are incomplete, the entire pool of deposits at a given bank may be insured only up to $250,000 under the broker’s name rather than being split across individual customers.8Federal Deposit Insurance Corporation. Pass-through Deposit Insurance Coverage
If cash is held directly at the brokerage rather than swept out, SIPC coverage applies instead, with a $500,000 ceiling per customer and a $250,000 sublimit for cash. SIPC does not protect against investment losses. If a money market fund’s value declines or a bond defaults, that is an investment risk, not a brokerage failure, and nothing is covered. SIPC only steps in when the firm itself collapses and customer assets go missing.9Securities Investor Protection Corporation. What SIPC Protects