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- Cash in these accounts can be parked to collect interest, reinvested, or withdrawn for paying bills.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
Options for Managing Your 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.
What should I do with brokerage cash? ›
Options for Managing Your 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 is my money in brokerage cash? ›
Brokerage cash reflects the total amount of cash in the account before subtracting things like unsettled trades or collateral for a margin loan. So if you see a large sum of brokerage cash in your account, be aware that this amount may not all be available for reinvestment or withdrawal.
Can I cash out brokerage cash? ›
You can only withdraw cash from your brokerage account. If you want to withdraw more than you have available as cash, you'll need to sell stocks or other investments first. Keep in mind that after you sell stocks, you must wait for the trade to settle before you can withdraw money from your brokerage account.
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.
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.
Should I keep all my money in a brokerage account? ›
As a general rule, unless you can leave the money invested for around two to five years, it should be in savings instead of a brokerage account. Otherwise, the risk is too high that you'll end up buying and selling at a bad time before you make enough profits to break even.
Can you lose cash in a brokerage account? ›
It is possible to lose money investing in securities. On the other hand, depositing your savings at an FDIC-insured bank ensures that your money is protected in the event of bank failure. Your deposits are automatically insured to at least $250,000 at each FDIC-insured bank.
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.
Can I withdraw brokerage cash from Robinhood? ›
To withdraw money from Robinhood to your bank account, simply follow these steps: Open the app, go to the menu, select “Transfers,” choose “Transfer to Your Bank,” enter the amount you wish to withdraw, review the details, and confirm.
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 penalty for cashing out brokerage account? ›
A brokerage account is an investment account from which you can purchase investments such as stocks, bonds and mutual funds. You can add money to a brokerage account, similar to depositing funds into a bank account. Brokerage accounts have no contribution limits or early withdrawal penalties.
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.
How do you spend brokerage cash? ›
How to use your brokerage cash
- Invest in stocks, exchange-traded funds (ETFs) and other long-term assets. Buy and hold securities like stocks and ETFs, which offer the greatest potential for growth over the long term.
- Buy short-term bonds or CDs. ...
- Leave it alone to earn interest. ...
- Pay bills.
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.
Why should no one use brokerage accounts? ›
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 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 long does it take for brokerage cash to settle? ›
Currently, settlement date occurs two business days after trade date, but recent rule amendments from the Securities and Exchange Commission (SEC) and conforming FINRA rule changes will soon make that cycle one day shorter.
