BUSINESS

Do you know how much interest you're earning on cash in your brokerage account? More than likely, unless it's in a money market mutual fund, it's earning very little interest, maybe 0.25 percent, in a bank deposit account.

Perhaps money that flows into your account from dividends, interest and stock and mutual fund sales will be there for only a very short amount of time before being reinvested and so you might not really care how much interest it earns.

But millions of consumers are losing a significant amount of money because billions of their dollars are being swept into low-interest bank deposit accounts instead of high-yielding money market funds.

Bankrate's exclusive survey of 20 brokerage institutions shows that only four -- Banc of America, Muriel Siebert, ShareBuilder and Vanguard -- automatically sweep customers' excess cash into money funds. The rest use predominantly low-yielding bank accounts with an average yield of 0.56 percent. The average yield of the four money fund accounts is 2.78 percent.

Critics note that several brokerages sweep the money into their own banks, profiting off clients' excess cash while doling out minimal interest to the customer.

Adding what some say is insult to injury, the interest earned in the bank deposit account is tiered. While the interest rates in these accounts rarely compare favorably to a money market fund, the more money in your deposit account, the more you earn. Some institutions base the account balance on the total household assets you have with the company, including mortgages. Others base it simply on the amount in the deposit account.

At Schwab, which uses total household assets, the annual yield for a household balance of less than $10,000 is 0.11 percent. Having a household balance of $5 million won't get you much more, just 0.50 percent.

If you have $500,000 in household assets with Schwab, you can have excess cash swept automatically into Schwab Cash Reserves, which currently yields 2.77 percent. Customers with a minimum of $25,000 can manually buy shares of the Schwab Value Advantage Fund, or if they have a minimum of $2,500, the Schwab Investor Money Fund is available.

Merrill Lynch, Morgan Stanley, Citigroup, Charles Schwab, Wachovia and TD Ameritrade are facing class-action lawsuits, accused of "engaging in deceptive and misleading cash sweep programs."

Negative consent
A TD Ameritrade official wouldn't address the lawsuit but said that until a few years ago there was a pattern in the industry of moving clients' extra cash out of money market funds into bank deposit products using negative consent; in other words, the money would be moved unless the customer said no.

When regulatory agencies decided that broker-dealers could no longer use negative consent as a means of moving a customer into a product that had a lower yield, companies had to employ positive consent.

"We had most of our customers in a cash product at the broker-dealer," says James Powell, managing director of the treasury group at TD Ameritrade. "We moved those customers into a bank money market deposit account using negative consent because we moved them to a higher rate."