Whether you have $1,000 or $1 million invested, there’s a good chance you’ll hold some cash in your investment account(s) at some point, whether it’s proceeds from a sale, dividends or routine contributions. But do you know what happens to that idle cash in the meantime?

For starters, it may not exactly be idle.

Depending on the investment vehicle used and the dollar amount invested, that cash earns interest and/or dividends every month. That’s because your investment firm transfers that cash into investments that provide for daily liquidity. It’s what’s called a cash sweep program and most investment firms handle this aspect of their business a little differently.

That’s why it’s a good idea to know how your money is invested. Here’s what you need to know about cash sweeps.

HOW DOES CASH SWEEP WORK?

This is one, be it rare, case when financial jargon works well. In a cash sweep, an investment firm figuratively sweeps clients’ uninvested cash balances into a (again figurative) dust pan and empties it into either FDIC-insured accounts held at one or a network of banks, or into one of several money market mutual fund offerings. At the end of every month you’ll receive an interest or dividend payment. And although your cash “moves” around, it’s always accessible when you choose to invest in longer term investments.

THINGS TO CONSIDER

Crediting rates vary. The interest or dividend you earn on cash sweep balances will typically vary with every firm’s cash sweep program. This variability is due to the types of investments that each cash sweep program utilizes (invests in), as well as the rate that they are willing to pay for your cash sweep balances. Unlike many firms that “tier” their FDIC insured cash sweep programs and pay different rates for different cash balances, Northwestern Mutual’s FDIC Insured Deposit Program, as of June 17, pays a consistent and competitive rate of 1.63 percent* for all client balances, regardless of size.

Are you paying a fee? Keep in mind, brokers or investment firms typically charge a fee to offer cash sweep services – so make sure you know what you are earning and what you might be paying.

To be fair, whatever yield you earn on uninvested cash in an investment account isn’t going to make you rich, but every little bit counts on the way to building wealth.

*No investment strategy can guarantee a profit or protect against loss. All investments carry some level of risk including the potential loss of principal invested. Financial Representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.

Cash sweep product yields fluctuate. FDIC insured deposit programs are not covered by the SIPC. Money market funds are subject to SIPC coverage limits, but money market funds are not insured against market loss. An investment in any money market fund is not insured or guaranteed by the FDIC or any government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

Clients should refer to the appropriate prospectus or NM FDIC Insured Deposit Program Disclosure Statement for important information.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company and its subsidiaries. Life and disability insurance, annuities, and life insurance with long-term care benefits are issued by The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM). Long-term care insurance is issued by Northwestern Long Term Care Insurance Company, Milwaukee, WI, (NLTC) a subsidiary of NM. Securities are offered through Northwestern Mutual Investment Services, LLC, (NMIS) a subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC. Fiduciary and fee-based financial planning services are offered through Northwestern Mutual Wealth Management Company® (NMWMC), Milwaukee, WI, a subsidiary of NM and a federal savings bank. Products and services referenced are offered and sold only by appropriately appointed and licensed entities and financial advisors. Not all products and services are available in all states. Not all Northwestern Mutual representatives are advisors. Only those representatives with the titles "Financial Advisor" or "Wealth Management Advisor" are credentialed as NMWMC representatives to provide advisory services.

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