b...@a...com wrote:
> Discount brokerage firms catering to active traders often pay low
> interest on cash balances.

There's a "follow the money" answer too...when you see brokerage firms
report their income recently, their ability to borrow on the cheap and
lend at higher rates, has been keeping the numbers up. Example, Schwab's
Q1-2008 income statement, where they break income down by segment...
http://tinyurl.com/3tvast
Interest revenue, $510 million, interest expense $91 million - good
business to be in! Total profit for the quarter was just $305 million.
Trading revenue (not income, just revenue) was only $246 million.

Point being, trading commissions are a bit like the loss-leader at a
supermarket, the $1.99/gallon milk that gets you in the door. It's not
how most brokerage firms really make their money, and the ways they do
make money have to come out of account holders' pockets - such as low MM
rates on core cash balances. As B pointed out a low MM rate might be
tied to low commissions, for active traders who don't care because they
don't keep much in cash...but if you do, you might look for a firm with
higher commission but better MM rates.

-Tad

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