NEW YORK (TheStreet) -- If you're an investor who likes to keep ample amounts of "cash" in your brokerage account, you may want to consider opening an online savings account linked to a brokerage account instead. Here's why:
Most brokerage accounts require investors to hold cash in a money market mutual fund: These funds
. If short-term debt inside of a money market fund cannot be paid (or paid in full), investors will be forced to absorb losses. The likelihood of your money market fund "breaking the buck" (dropping below $1 per share) is extremely unlikely, but it has happened in recent history (
But these funds do face real risks: An unintended consequence of the
zero-interest rate policy (ZIRP)
is that money market fund managers have been directed toward investment outside of the U.S. --
One way to bypass the risk of holding your liquid investments in a money market fund is to open an online savings account that allows you to make instant cash transfers to a linked brokerage account. Banks that offer this functionality include
That means that you can leave your cash parked in an FDIC insured bank account (collecting a yield higher than most money market funds, insured up to $250, 000), and if you see a security that you'd like to purchase, you can instantly transfer your money to your brokerage account.
For investors with less than $250, 000 of cash held in brokerage accounts, this is a simple way to protect your capital and enhance short-term yield.
-- Written by John DeFeo in New York City
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.