Major brokerage houses are facing proposed class actions for sweeping uninvested money into low-interest accounts at affiliated banks, reports The National Law Journal (a sibling ALM newspaper) today. The brokerage firms allegedly earned 8 percent interest while paying account holders 1 percent or less.
It remains to be seen if these lawsuits will succeed. But regardless of the legal outcome, investors often can find ways to avoid low returns from their cash reserves. As I've mentioned in a previous column, these options include some online savings accounts and money-market funds and sometimes even Series I U.S. savings bonds. And those investors without much time to devote to managing accumulated cash in a brokerage account may wish to consider mutual funds, which typically can reinvest interest and dividends automatically.