An executive at a discount brokerage firm once told me off the record that, surprisingly, the biggest money maker for a brokerage isn’t its bread-and-butter business – commissions – but the net interest on cash parked in client accounts. The brokers typically pay little or nothing on cash balances. For example, TD Waterhouse currently pays a miniscule 0.025% on cash balances in registered accounts and 0% in taxable accounts.
If you keep a cash balance in your brokerage account, you may want to park it in a money market mutual fund or cashable GICs. This is especially true for registered accounts where you do not have the option of sweeping extra cash into a high interest savings account. Admittedly, with interest rates very low, money market funds pay next to nothing these days and you may have to watch out for fees and charges. Cashable GICs may be better a better option: a quick check on RBC Direct Investing shows that GICs pay around 0.75%.