Kirby on Finance

How your broker is ripping you off!

If you’re like me - you’ve got money sitting in your brokerage account waiting to be used on your next investment. I’ve justified this in the past because I feel like the more money I have in my brokerage the account, the “more serious” an investor I am. This silly logic is hitting me where it hurts - my bottom line. Check out the measly amounts of interest some of the major brokerages pay for money kept in a money market account as reported by MSN Money:

TD Ameritrade Holding pays just 0.1% on cash balances of up to $5,000 if you don’t ask them to give you a better deal. For cash balances up to $25,000 they pay just 0.4%. Up to $100,000 they pay 1.65% — even though the going return on money market mutual funds is around 4.8%. Ameritrade gathered $185 million in revenues by paying clients so little on their idle cash and then “sweeping” it into an account run by a banking partner, where the money earned Ameritrade a much higher rate. On average, clients held $5.7 billion a day in cash during Ameritrade’s last fiscal year, which ended Sept. 30.

E*Trade Financial pays the same as Ameritrade for the first two tiers, but for cash balances between $25,000 and $100,000 it pays out only 1%. On average, the broker paid just 0.87% on the $10.3 billion-a-day average that clients kept in brokerage accounts in the third quarter of 2006.

Charles Schwab pays around 1% on cash balances if you have up to $100,000 in assets, unless you ask them to do better. It pays around 2.6% if you have more than that. Overall, Schwab paid clients 2.56% in the third quarter of last year. Schwab earned about 5.1% and pocketed the difference.

Those numbers are pretty pathetic. I think it’s a shame that brokers don’t offer their customers a more reasonable return on their money. Sarah Bulgatz, who’s a Schwab Spokesman explains the “issue” by saying, “We really like having this conversation with our clients and educating them on what they can earn on their cash.” You see, they’re actually doing us a favor, by ripping us off!

Don’t give your broker a free loan [Michale Brush - MSN Money]

My Current Financial Situation (January Edition)

Since January is over, I felt it appropriate to update everyone on the state of my finances. Just to bring everyone up to speed, let me explain a little bit about who I am. I’m a law school student in my early twenties, who’s accumulating quite a bit of student loans with the anticipation of a fruitful career. I hate to get into specifics, but it costs about $25k per year to goto the law school that I attend, and while I don’t borrow that full amount every year, I’m awfully close to it.

In addition to that debt, I have roughly $2K in credit card debt that I accumulated during trips to New York and various other places. Up until now, roughly half of it was interest free and the other half was sitting around 8.9% APR. Within the next week or so, 100% of the balance will be transferred to a 0% account.

Many of you may frown upon the credit card debt, and I feel a sense of frustration with it myself - but I promise you my money is better spent elsewhere. I do plan to have the entire balance paid off before the end of the year. I just didn’t want to touch savings or any money from my brokerage accounts because I felt the money was best suited there. This of course assumes I can maintain a 0% APR on the debt. Whatever portion of the balance remaining by the end of the year, which will hopefully be none, I will pay for outright with money from savings.

So, for the month of February, I have a few financial goals:

• Complete switch of credit card debt to 0% APR accounts.
• Make a minimum of 1/12th payment to credit card debt.
• Pick an ETF to begin accumulating a position within.

Monday, I’ll post about some of my personal goals!