Chris MihosCash that isn’t working for you is almost always working for someone, and it’s worth knowing who.
Every well-run portfolio keeps some capital in reserve, because liquidity has to match the owner’s needs and some of those needs arrive at short notice. That reserve isn’t really idle, though, because whoever holds it usually puts it to work in short-term government debt or something similar and earns a return on it. The question is how much of that return reaches you. With a money market fund, most of it does, after fees. With a broker’s cash sweep, often very little does. With a stablecoin, the law in the US now says none of it can, because the issuer keeps it. Knowing which arrangement you’re in is one of the simplest ways to stop paying for liquidity without realising it.
Why idle capital is never really idle
When you leave cash with a broker, an exchange or a stablecoin issuer, the money doesn’t sit in a vault. It’s typically placed in short-dated Treasury bills, repurchase agreements or similar instruments, which in recent years have paid a meaningful return, and someone always collects it. The only question is how it’s divided between the institution holding the cash and the person who owns it.
That division is rarely explained clearly, and for a large reserve it can add up to a substantial amount every year. It matters most for exactly the people who manage liquidity carefully, because the more responsibly you hold a reserve against future needs, the more capital sits in that position and the more the split matters.
Broker cash sweeps: convenient, and often expensive
Most brokerage accounts automatically “sweep” idle cash into an affiliated institution, where it’s held until you need it. The convenience is real, but the rate paid to clients has often been a small fraction of what the firm earns on the same cash, and that gap has become the subject of lawsuits and regulatory action.
In January 2025, Wells Fargo and Merrill paid a combined $60 million to settle SEC charges relating to their cash sweep programmes. Wells Fargo has since faced further class actions alleging that it paid clients minimal rates while earning substantial amounts on their cash. Schwab has been sued on similar grounds and denies the claims, and Morgan Stanley’s mid-2026 quarterly filing describes a consolidated cash sweep case alongside requests from state securities regulators. None of these cases had reached a final judgment at the time of writing, but they’ve made one thing clear: the default setting for cash in a brokerage account isn’t designed with the client’s return in mind.
Money market funds: the return mostly reaches you, with conditions
A money market fund takes the opposite approach, holding short-term government and corporate debt and passing the return on to its shareholders after fees, which is why many careful allocators move their reserves into one rather than leaving them in a sweep.
Money market funds aren’t free of risk, and their history shows where the risk lies. In September 2008, the Reserve Primary Fund “broke the buck”, with its share value falling below $1 after losses on debt issued by Lehman Brothers, which set off a wave of redemptions across the industry. In March 2020, prime money market funds faced heavy redemptions again. In response, the SEC reformed the rules in 2023, removing the ability of funds to suspend redemptions temporarily, sharply increasing the minimum share of assets that must be available within a day or a week to 25% and 50% respectively, and introducing mandatory liquidity fees for institutional prime funds on days when net redemptions exceed 5% of assets. Government money market funds, which hold Treasuries and similar instruments, carry less credit risk than prime funds, which also hold corporate debt.
The broader lesson is that even the most conservative home for idle cash involves a chain of other parties, a theme we pick up in Every handoff is a counterparty.
Stablecoins: the issuer keeps the return, by law
A stablecoin is a digital dollar, and the issuer backs each one with reserves, mostly short-term Treasuries. Those reserves earn a return, and in the US that return stays with the issuer. The GENIUS Act, signed in July 2025, prohibits issuers of payment stablecoins from paying holders any return on their reserves, and that rule takes effect on the earlier of 18 January 2027 or 120 days after final regulations are published.
The sums involved are large: Tether reported net profit of $1.04 billion in the first quarter of 2026, with around $141 billion of US Treasuries in its reserves. Circle earned about $1.66 billion on its reserves in 2024, and paid around $900 million of that to Coinbase under their distribution agreement. Holders of USDT and USDC received none of it.
None of this makes stablecoins a poor tool, because they’re excellent for moving and settling value at any hour, and that’s exactly what they’re for. It does mean that holding a large balance in a stablecoin for weeks or months has a cost that’s easy to overlook, because the return on that capital is going to the issuer and its partners rather than to you.
Tokenised money market funds: the return, on onchain rails
Tokenised money market funds sit between these options, and funds such as BlackRock’s BUIDL and Franklin Templeton’s onchain fund hold Treasuries and pass the return to their holders, while existing as tokens that can move and settle like other onchain assets. They’re generally available only to qualified holders, and they come with their own terms and counterparties.
They’re also becoming useful beyond simply holding cash: since November 2025 Binance has accepted BUIDL as off-exchange collateral for institutional traders, and since February 2026 it has accepted Franklin Templeton’s tokenised fund shares, held with the custodian Ceffu, on the same basis. In other words, a manager can now support trading positions with capital that continues to earn a return for its owner, rather than with stablecoins whose return goes to the issuer.
How to find out who earns on your idle capital
It’s worth listing every place your reserve capital sits and asking the same few questions about each one. Who holds the cash and what do they do with it? What return does that earn, and what share of it reaches you after fees? Can the arrangement be changed without your agreement, as sweep rates often have been? And what are the liquidity terms and counterparties involved, since a slightly better return is rarely worth an extra link in a chain you don’t understand?
Then look at how large the reserve needs to be. If your liquidity is well matched to your actual needs, as described in Liquidity is a match, not a feature, you may find that you’re holding more idle capital than you need, simply because nobody has ever mapped one side against the other.
How MakeBanc approaches it
MakeBanc shows you every cost and every party involved in an allocation, itemised on a stated base, including anyone else who is paid. Allocations are made in stablecoins such as USDC into a vault that you sign for, and the terms of each strategy, including how and when a redemption settles, are visible before you commit. MakeBanc doesn’t pay anything on idle balances or manage your reserve, and it doesn’t tell you how much to keep in reserve. What it gives you is a clear view of where your capital sits and who is paid along the way.
Frequently asked questions
Who earns money on my idle cash? Usually the institution holding it. Brokers, exchanges and stablecoin issuers place idle cash in short-term instruments such as Treasury bills and keep some or all of the return. Money market funds pass most of the return to shareholders after fees, while US stablecoin issuers are barred from paying any of it to holders.
What is a brokerage cash sweep? A cash sweep automatically moves idle cash in a brokerage account into an affiliated institution. The rate paid to clients has often been well below what the firm earns on the cash, which has led to SEC settlements, including $60 million paid by Wells Fargo and Merrill in January 2025, and to several lawsuits.
Can stablecoin issuers pay holders a return? Not in the US. The GENIUS Act, signed in July 2025, prohibits issuers of payment stablecoins from paying holders any return, so the return on reserves stays with the issuer and its partners.
Are money market funds risk-free? No. The Reserve Primary Fund broke the buck in 2008 after losses on Lehman Brothers debt, and prime funds faced heavy redemptions in March 2020. SEC reforms in 2023 removed redemption gates, raised liquidity requirements and introduced mandatory liquidity fees for institutional prime funds.
Sources
- The Wealth Advisor, Wells Fargo sued over low returns on cash sweeps
- Financial Planning, Wells Fargo sued, again, over sweeps rates
- Intelligize, Lawsuits renew scrutiny of cash sweep accounts
- Morgan Stanley, Form 10-Q for the period ended 30 June 2026
- Harvard Law School Forum on Corporate Governance, The SEC’s money market fund reforms, August 2023
- Dechert, SEC adopts money market fund reforms, July 2023
- Wikipedia, Reserve Primary Fund
- BlockEden, Tether Q1 2026: $1.04B profit, May 2026
- Transak, How do stablecoin issuers make money?
- Upshift, How the GENIUS Act and CLARITY Act reshape stablecoin yield
- Cointelegraph, Binance accepts BlackRock’s BUIDL as off-exchange collateral, November 2025
- Franklin Templeton, Franklin Templeton and Binance off-exchange collateral program, 2026
MakeBanc is a technology platform that connects investors with independent asset managers. MakeBanc does not provide investment advice, custody services or banking services, and does not pay any return on idle balances. Products and firms named here are drawn from public reporting and are not available through MakeBanc. Past performance is not indicative of future results.