So you've piled up a bit of cash in your brokerage account. Maybe you bought low and sold high, transferred funds from a bank, or haven't reinvested your dividends. You've got cash—and this a good problem.
Before making plans for that little sum of green—which may be titled brokerage cash in your statements— you have to figure out what is yours to use immediately. Then you can have fun.
Key Takeaways
- Brokerage cash is a top-line cash total in your investing account. It's the cash amount before stripping out items like unsettled trades and collateral.
- Not all of your brokerage cash is immediately available for trading or withdrawing. That would be a bottom-line number which may be called buying power, cash available for withdrawal, or something similar.
- Cash in these accounts can be parked to collect interest, reinvested, or withdrawn for paying bills.
Brokerage cash for some may be categorized as found cash—that surprise stash that piled up as you weren't watching. Others might carefully nurture it, monitoring assets from stock sales, dividends, and transfers. You can let it ride and collect a bit of interest, take it out and spend it, or invest it.
Whatever you choose, you have to know what's yours to spend. And brokerage cash, as it's labeled in the Robinhood app, isn't necessarily available to spend at that moment. That's because the brokerage cash line is a top-line number, meaning you have to strip out some things like funds from unsettled trades and collateral before arriving at a sum that you can spend. Brokerage cash is a tricky number; it's not the same as money in your wallet.
Keep looking in your account and you'll find the true bottom line, the amount you can spend immediately. Schwab calls it “cash available for withdrawal.”
Now that you know what's yours, the time is here to figure out what to do with it. What you do of course depends on factors like how much you have in that bottom-line account as well as your immediate needs—like bills or vacations—and long-term requirements or time horizon. Since everyone's needs are different, the following are some rough guidelines for what to do with your brokerage cash.
Buy More Stocks, Bonds, ETFs
If your appetite for risk means that you can afford short-term dips in pursuit of long-term gains, then keep investing for growth. If you make a gain on a stock sale, then put it back into the market. If you're getting dividends, opt to have them reinvested, and they won't pile up in your brokerage account.
Put the Cash in a Short-Term Debt Instrument
Do you think you'll need the money soon? But not immediately? Some financial experts recommend putting your brokerage cash into a so-called ultra-short bond fund. Ultra-short bond funds hold fixed-income securities that typically mature in less than one year and pursue higher yields by investing in riskier securities than traditional bond funds. In high-interest-rate environments, ultra-short bond funds of certain types may be extra susceptible to losses.
Leave It Alone
You can let it sit. Yes, keep your powder dry. It will be there when you need it. In most cases, it'll be swept into an FDIC-insured account. Still, the problem is you'll earn interest equivalent to that of a bank savings account. Pretty crummy, but it'll be there.
Spend It
Most brokerages will let you pay bills with your brokerage cash. Charles Schwab, Interactive Brokers, and many others permit this, and you just need to set up a payment account. Or spend it on your vacation, or get some nice shoes. Go ahead—it's your money.
What's the Difference Between Brokerage Cash and Buying Power?
Brokerage cash is a top-line cash total in your investing account. It's the cash amount before stripping out items like unsettled trades and collateral. Buying power is the bottom-line amount of cash available to you immediately. It might be called "cash available for withdrawal" or some variant on that.
What Are Some Examples of Low-Risk Things To Do With Brokerage Cash?
Investors can leave the money where it is and it will earn a tiny rate of interest similar to that of a bank savings account. Still, it will be insured if it's swept into an FDIC-covered account. Ultra short-term funds are another low-risk option.
Can Bills Be Paid With Brokerage Cash?
They sure can. Users just need to set up a cash management account with the brokerage.
The Bottom Line
Brokerage cash can be seen as found money—it might slowly accumulate over the years through dividends and stock sales. It can be reinvested or left alone to wait for the next investing opportunity. Another option is to set up a cash management account and pay bills with the cash. Or have some fun and go on vacation!
FAQs
Invest or reinvest for the long term. If you don't need to access your cash immediately, and you'd like to target some longer-term growth, you could invest your brokerage cash in different stocks, bonds or ETFs. Buy shorter-term bonds or CDs.
What should I do with brokerage cash? ›
Invest or reinvest for the long term. If you don't need to access your cash immediately, and you'd like to target some longer-term growth, you could invest your brokerage cash in different stocks, bonds or ETFs. Buy shorter-term bonds or CDs.
Can I cash out brokerage cash? ›
Yes, you can pull money out of a brokerage account with a bank account transfer, a wire transfer, or by requesting a check. You can only withdraw cash, so if you want to withdraw more than your cash balance, you'll need to sell investments first.
How do brokerage cash accounts work? ›
As the name suggests, when you buy securities with a cash account, you must do so using cash, paying for the purchase in full. If you want to buy $1,000 worth of stock, you must have $1,000 in cash in your account before your buy order settles, which is generally two days after you place the order.
What is the best way to use a brokerage account? ›
What can you do with a brokerage account?
- Buy and sell stocks, mutual funds, ETFs, and other securities.
- Take advantage of potential long-term growth.
- Set aside money for your retirement, or other goals like college tuition or a down payment.
- Gain access to investment research, tools, and strategies.
Brokerage cash is a top-line cash total in your investing account. It's the cash amount before stripping out items like unsettled trades and collateral. Buying power is the bottom-line amount of cash available to you immediately. It might be called "cash available for withdrawal" or some variant on that.
Where do you put brokerage cash? ›
Typical options for your uninvested cash include leaving it in your brokerage account, “sweeping” (automatically transferring) it to a bank deposit account as part of a bank sweep program, or sweeping it to a money market mutual fund as part of a money market sweep program.
Why can't I withdraw my brokerage cash? ›
If you sell a stock on Monday, it will settle on Wednesday (trade date = Monday). The cash will be available on Wednesday for withdrawal or transfer. If you sell it on Thursday, it will settle on Monday (weekends don't count). And if there's a market holiday in there, that will be skipped over as well.
Why is brokerage cash negative? ›
A negative fund balance is a common occurrence in the equity markets. It often happens when traders execute orders, but they don't have enough money in their accounts to cover all the costs.
How long does it take for brokerage cash to be withdrawn? ›
Once trade settlement is complete, funds will typically arrive in your Cash Account or external bank account in 1-2 business days. It may take longer if, for example, you recently made a deposit or if you are withdrawing to a different bank account than the one used for initial funding.
If the value of your investments drops too far, you might struggle to repay the money you owe the brokerage. Should your account be sent to collections, it could damage your credit score. You can avoid this risk by opening a cash account, which doesn't involve borrowing money.
Should I keep all my money in a brokerage account? ›
If you've got a large chunk of cash, you might secure better returns outside of a brokerage account. You could lose money. If your money is swept into a money market fund, that cash won't be insured by the FDIC or SIPC. It's possible to lose money.
Is brokerage cash taxable? ›
Many people falsely believe that any gains or income earned in a taxable brokerage account are not taxable until withdrawn, but that isn't the case. You'll pay taxes on brokerage account income in the tax year you earn it.
What is the downside to a brokerage account? ›
Brokerage accounts don't offer all the services that a traditional bank offers. Brokerages might not offer additional products such as mortgages and other loans. Brokerages may not have weekend or evening hours.
Where does brokerage cash come from? ›
Brokerage cash is uninvested money in your brokerage account that may come from bank transfers, dividend payments or the sale of securities. While you can use brokerage cash to invest, the best brokerage accounts pay interest on this cash through cash sweep programs or cash management accounts.
Do millionaires use brokerage accounts? ›
Millionaires use brokerage accounts for low-cost index funds. “Buying and holding index funds in a brokerage account, it's possible to keep and grow wealth over the long term,” according to Business Insider.
Should I leave cash in my brokerage account? ›
Holding cash here is appropriate if you plan to spend the money within a few days or would like to quickly place a trade. Assets in your brokerage account are protected up to $500,000 per investor, including a maximum of $250,000 in cash by SIPC in the event a SIPC-member brokerage fails.
What can I do with brokerage cash on Robinhood? ›
Your uninvested brokerage cash in the program banks is available for withdrawing and investing through your brokerage account and the cash balance is visible in your Robinhood brokerage account.
How much cash should you keep in a brokerage account? ›
“When we build a financial plan for clients, we tend to be a little bit more conservative, because we believe managing risk is important,” says Verhaalen. Verhaalen often recommends clients maintain a cash reserve that's, at a minimum, the equivalent of six months of income.
