A quick tip I discovered last week when making a cash transfer to my Robinhood account to avoid losing out on the interest during the money transit time.
Last week, I initiated a $25,000 cash transfer from within the Robinhood login. The funds were coming from my regular checking account and landing in Robinhood. I was surprised when the system told me that the transfer would take up to 5 business days to complete. Indeed, it ended up taking 6 full days for the funds to settle in my brokerage.
My plan had been to hold this $25,000 in cash, taking advantage of the nice interest rate offered to Robinhood Gold members.
(For those keeping score, in the end I decided to keep Robinhood Gold for the year after signing up on the pie promotion. I’m considering moving my IRA over to Robinhood, and I’m hoping they’ll run a 3% IRA transfer bonus sometime this year.)
With larger transfers the interest which is lost from the week when the funds are in transit can add up. In my case it was a matter of around $20, and for larger transfers it can be even more.
Interestingly, Robinhood gave me instant access to use the $25,000 to buy stocks or funds. I’ve seen similar with Vanguard and it’s probably true with other brokerages as well. Those who already have balances with the brokerage will often be given instant access to trade the funds, even before the cash settles in the brokerage account.
I immediately used the $25,000 to buy SGOV which is an ETF that invests in US treasuries. We wrote more about various ETFs and funds which are similar to savings accounts in this post. Some ETF options are BIL, SGOV, and ICSH. (SGOV will have a state tax savings advantage for some people.)
If I would wait for the funds to settle in Robinhood, I do not think Robinhood would give me interest on the funds during transit time. Buying a treasury fund yielded me an extra 6 days of interest, probably around $20.
A similar thing can be done when transferring funds to Vanguard, though I’m not sure if all brokerage take as long for money transfers.
I might decide to just keep my funds permanently in SGOV or a similar fund within Robinhood. That would then enable me to take advantage of the Robinhood $1,000 free margin benefit. (When you hold funds in the cash account, it’s not possible to take out the margin loan.)
On a related note: when moving large sums of money, it’s often worth using a wire transfer and paying the wire fee if that results in retaining the funds longer in a high-yield savings account. The extra interest earned from those few days can outweigh the wire fee.
What will happen when liquidating SGOV? For example, if I sell SGOV today, will I earn its interest from today? Or, will I have to wait until the liquidated cash is settled?
Yeah, keep SGOV. It yields more than RH is paying, plus you can use the extra $1000 free loan. SGOV also has state tax advantage, unlike RH.
This information has been gained via my personal experiences over many years with transferring “large” amounts of money (not securities, ACAT is used for that) between various financial institutions. Beware: Your Milage May Vary!
The fastest way to transfer “large” sums of money is via a wire transfer. It’s usually done the same day that it is requested and it’s a very secure way of sending money. And somebody has to pay for this service – usually the person initiating the wire but sometimes you can be reimbursed for the wire fee by the receiving bank and/or the fee may be waived if you are a VIP client at the originating bank. Note that this is a permanent transfer of money (ie it usually can’t be reversed, unlike an ACH transaction which can be reversed, cancelled, or rescinded a week or even longer after the initial ACH Xfer request was made.) Scammers love to use wire transfers because once the money is wired to them, they take the cash and disappear without a trace and without any way for the originator of the wire transfer to get their money back by trying to reverse the wire..
When you use the Automated Clearing House network (ACH) to transfer funds, if you “”push” the funds out of the originating bank (ie initiate the ACH transaction from the bank where the funds currently reside), the ACH Xfer happens in 1-2 days and the receiving bank usually does not hold the received funds for more than a day. ACH transfers are usually free although some banks will charge you if you initiate an ACH transfer or if you want a “fast” (1-2 day) transfer. There are also $$$ limits on how much a bank will let you “push” out. There are usually no limits on how much $$$ a receiving bank will accept.
if you use an ACH transfer to ”pull” (ie at the receiving bank, you initiate a request to transfer funds into it from a remote bank), the process often takes 2-7 days because the receiving bank wants to make sure that the sending bank is “ok” with this withdrawal.
There are also other ways to transfer money (Venmo, PayPal, Zelle, shady couriers carrying bags of cash, crypto wallets, etc) but this a post for an another time.
if in doubt, ask both the originating bank and the receiving bank IN ADVANCE of a transfer for the transaction costs, transfer timeframes, Xfer limits, hold times, etc. A little investigative work beforehand saves many headaches down the road. And all these variables may change over time . . . .
good luck!
Of note: wire transfers are free at Fidelity (both in and out).
BoA as well if you’re Preferred Rewards (many here are because of the increased credit card rewards), up to 2 per statement cycle.
Outgoing are only free at BoA if you’re Diamond or Diamond Honors (unlimited in that case). Incoming free at all levels.
Wires are free for Wells Fargo Premier checking
When you start a pull from RH or Fidelity, it sometimes takes a day for the other bank to show it as pending/cleared. Does anyone know when the money in the other bank stops earning interest?
Can you game this over a weekend/long weekend to generate extra interest?
Example: On Friday Initiate $100K pull in fidelity from an outside account. Invest that immediately in SGOV. On Monday the money comes out of the linked account. Do you net the additional 2 days of interest?
Yes, that is exactly what Chuck described. There are also several banks/CUs that credit your pull the same day but won’t debit the external account until next business day. Sofi, Laurel Road, Marcus, Live Oak, Affinity to name a few. I’m sure there are others, hopefully people will chime in with more. The pulls should be done in the late afternoon to ensure they don’t get debited same day as well.
LCB and PF are 2 others that do that.
PF= penfed?
Yes.
Even better to do on a Friday afternoon…
That was already assumed…
LOL This is a game that has been played for a century. Write yourself a check from Bank A to Bank B on your MMA or interest bearing checking account. Deposit the check into an interest bearing account. Earn interest on both accounts until the funds are pulled from Bank A.
Hmmmm, never thought about it like that. Interesting post.
I also have some money in my RH account with 4% for Gold + 1% boot (for two years, actually 0.5% per year). If I use the money to buy SGOV, do they still pay me the boot? TIA
It would not make sense for them to do so. The extra 1% boost is on the cash balance, no?
If you are talking about a 1% extra bonus for moving investments to RH, this has its own terms
Very well thought out strategy.
It doesn’t actually make any sense because you would prefer to use SGOV since it pays higher interest, so would buy right away no matter what. Anyway, even if you didn’t place the order, interest starts accruing the day the deposit is credited, not when the hold is released.
I’m not sure about the latter point, though it doesn’t appear to me that way.
Regarding the first point, I’m under a 4.5% Robinhood promo rate right now which appears to be higher than the recent 4.37% SGOV (fluctuating) rate.
You are probably better off getting Bask, LCB or Zynlo as they all offer a 4.5% rate with no minimum $25K requirement. LCB and Zynlo don’t do Chex inquiries but Bask does.
SGOV is mostly state tax exempt, which probably makes its Tax-Equivalent Yield higher than 4.5% (unless you have no state tax)
It’s not the case for me. I always exactly use up my $1k free gold margin. From time to time, I used RH as a “hub” to move money around (all transactions initiated from RH side), as it only takes one business day to push to external bank while my external bank transfer is much slower.
For example, if I want to move $10k from bank A to bank B. I would deposit $10k from A to RH, and immediately withdraw $10k from RH to B. If the deposit accrues money on the same day, I would not be charged any margin interest. However, RH charges me 2-3 days of margin interest on $10k. I was told by the customer service that the withdraw happens immediately, but the deposit will take a few days to “settle” and cover my margin debt
Fidelity will let you invest immediately and withdraw about the same amount of what you invested with Fidelity in the next business day.
Only if they like you. Seems they don’t like most people here…
This is my experience too, but YMMV.
I notice they now include the disclaimer “funds may be unavailable for an extended length of time…” when initiating a pull from within Fidelity.
So far the funds have always been available for immediate investment and for withdrawal the next biz day. But you never know when your luck will run out.
I often open seperate Zelle accounts, and Zelle from one account to the other instead of ACH.
I do the same but that only works for small amounts
Zelle on a recently opened account is a fraud vector of interest. Also Zelle is not applicable to brokerage transfers generally. Though some brokerages have banking arms that may be on Zelle like Schwab bank.
Morgan Stanley also provides Zelle (at least in Cash Plus accounts).
Yes Robinhood gives you access to the funds immediate and Gold gives you access for bigger amounts.
https://robinhood.com/us/en/support/articles/instant-deposits/
My gold account says I get 5k or up to 3x my investments. Annoyingly it doesn’t tell me the limit upfront but I’m pretty sure when I moved 100k once it let me instantly use all or most.