The Ignorant Investor

In Brokerages Cut Yields For Small Investors, Jane Kim of the Wall Street Journal writes:

Some brokerage firms are finding new ways to pay wealthier investors more on their cash holdings -- and pay smaller and even mid-tier investors less.

These firms are creating new "tiers" for the so-called sweep accounts that hold clients' cash, allowing investors with more money at a firm to earn higher interest rates while those with smaller balances earn less. Some firms are setting up as many as nine different tiers to segregate customers. Others are simply raising the bar on who gets the best rates. The sweep accounts typically contain proceeds from stock sales or dividends. But some investors keep their portfolio's entire cash allocation in such accounts.

The difference between tiers are significant. Charles Schwab's rates on the same type of account ranges from .5% for investors with less than $10,000 in assets held with the firm to 2.55% if you have $5 million in assets with them. That's a pretty wide range, and if I sound overly irritated off it's because I'm a Schwab customer. What kind of firm would set up a system that seems to be modeled on Dante's nine circles of hell?

Kudos to Citibank's Smith Barney unit and the few other brokerage houses that appear to have resisted this trend. There is no way your cash should not be earning something near the rate of inflation. Losing the equivalent of 2-3% of your cash in a year is not the route to a bright financial future, particularly at a time when stock prices are growing weakly, if at all.