E*Trade Cash Balance Program: Investing Strategies For Beginners

E*TRADE offers a variety of cash management features that allow you to access, move, and manage your money. With a cash account, you can buy stocks, bonds, or mutual funds, which you will own. Cash accounts require that all stock purchases be paid in full on or before the settlement date, which is typically the trade date plus one business day. E*TRADE offers a Bank Deposit Program (BDP) and an Extended Sweep Deposit Account (ESDA) Program, which is a bank sweep program that automatically transfers cash in a brokerage account to a deposit account at one or more banks. The ESDA Program offers FDIC coverage of up to $500,000 for individual accounts and $1,000,000 for joint accounts. To set up an E*TRADE account, you will need your residential address, Social Security number, current employment information, and bank account details. E*TRADE requires a minimum deposit of $500 within 60 days of account creation.

Understanding cash accounts

A cash account is a beneficial way to invest if you want to buy stocks, bonds, or mutual funds, and own these securities yourself. Cash accounts require that all stock purchases be paid in full on or before the settlement date. The settlement date is the date when the payment is made and the transfer of security ownership occurs. The settlement period is the time between the trade date (the date when the transaction occurs) and the settlement date.

In general, stocks settle T+1, i.e. trade date, plus one business day. However, banking holidays, like Columbus Day and Veterans Day, are non-settlement days where the securities markets are open. While you can trade on these days, they are not included in the settlement period.

The buying power in a cash account is the maximum dollar amount available for placing trades. Settled funds, unsettled funds available, and unsettled funds unavailable are used to determine a cash account's buying power. Proceeds from the sale of fully paid securities are immediately available as buying power.

There are rules to be aware of when trading in cash accounts. One rule is that when you buy securities, you must pay in full on or before the settlement date. If you are not fully paid by then, you could create good faith or freeride violations.

Good faith violations occur when you buy a security and sell it before paying for the initial purchase in full with settled funds. Only cash or the sales proceeds of fully paid securities qualify as "settled funds".

Freeriding is when you buy securities and then pay for that purchase using the proceeds from the sale of the same securities. This violates Regulation T of the Federal Reserve Board concerning broker-dealer credit to customers.

Another violation to be aware of is a cash liquidation violation. This occurs when you buy securities and cover the cost of that purchase by selling other fully paid securities after the purchase date. Brokerage industry rules require you to have sufficient settled cash in your account to cover purchases on the settlement date.

Cash trading refers to the purchase and sale of securities using cash on hand rather than borrowed capital or margin. Most brokers offer cash trading accounts as a default account option. Since there is no margin provided, these accounts are much simpler to open and maintain than margin accounts. Cash trading tends to be safer than margin trading accounts because it doesn't involve the use of borrowed capital or leverage.

The Bank Deposit Program

The buying power in a BDP account is the maximum dollar amount available for placing trades. Settled funds, unsettled funds available, and unsettled funds unavailable are used to determine the buying power. Proceeds from the sale of fully paid securities are immediately available as buying power. For example, if a customer purchases 100 shares of XYZ stock on Wednesday for a total cost of $2,574 and sells the same 100 shares on Tuesday the following week, the funds of $2,635 are immediately available.

The BDP offers various cash management features that allow you to access, move, and manage your cash. You can get ATM fee refunds from any machine nationwide, make point-of-purchase payments at millions of locations worldwide, and add your card to Apple Pay, Samsung Pay, or Google Pay to make in-store, in-app, and online payments through your Wallet app. Additionally, eligible customers can get their first checkbook for free, access cleared check images 24/7, and use the convenient Transfer Money service to move funds to and from any financial institution.

The BDP provides interest on your program balances. The interest rates are determined by E*TRADE and are subject to change at any time. They may fluctuate daily or even intraday and are based on various factors, such as tiered interest rates. The interest earned on BDP deposits may be lower than the rates available through other short-term investment options or by depositing cash directly at a Program Bank.

The Extended Sweep Deposit Account Program

The ESDA is provided by Securities as an agent. The program is designed to offer up to $500,000 in FDIC coverage to individual accounts ($1,000,000 for joint accounts). The program is available to individual, joint, certain business entities, and certain fiduciary and trust accounts. It is not available to retirement accounts or investment advisory accounts.

By enrolling in the ESDA Program, you consent to having any uninvested cash balances in your Securities brokerage account automatically deposited into accounts at the Program Banks. The timing of these deposits depends on when the cash is posted and cleared: any cash posted and cleared before 11:30 a.m. ET will be transferred on the same business day, while cash posted and cleared after 11:30 a.m. ET will be transferred overnight. There is no minimum amount required for initial or subsequent deposits, although individual Program Banks may set minimum amounts.

You will receive interest on your ESDA Program balances held on deposit at the various Program Banks. The interest rates are determined by Securities and are subject to change at any time. The interest rates available to you may be tiered based on various factors and may differ from rates offered to other customers.

You can withdraw your consent to participate in the ESDA Program at any time. If you do so, or if Securities terminates your ability to participate, any uninvested cash held through the program will be returned to your Securities brokerage account and invested in the E*TRADE Cash Balance Program unless you provide different instructions.

Cash management features

E*TRADE and Morgan Stanley Private Bank offer a variety of integrated cash management features that allow you to access, move, and manage the cash in your bank and brokerage account.

With E*TRADE, you can access the cash in your account with ease, at any time and from anywhere, with a $0 minimum. You can make point-of-purchase payments at millions of locations worldwide, and eligible customers can get ATM fee refunds from any machine nationwide. You can also add your card to Apple Pay, Samsung Pay, or Google Pay to make in-store, in-app, and online payments through your Wallet app.

The first checkbook is free for eligible customers, and you can stay in control with 24/7 access to cleared check images. E*TRADE's convenient Transfer Money service lets you move money to and from any financial institution. The online Bill Pay service is fast and convenient, allowing you to pay anyone, anywhere, and save time (and stamps) by receiving and paying your bills online in one place. You can also eliminate late fees by scheduling recurring payments and manage payments online or through your mobile device.

With E*TRADE, you can also securely deposit cheques using the E*TRADE Mobile app on your smartphone or tablet.

Setting up your E*TRADE account

To set up your E*TRADE account, you'll need:

• Your residential address
• Your Social Security number or Employment Identification Number
• The contact information of your current employer (if applicable)
• The information on the bank account you'll use to fund your ETRADE account (you can always set this up later)

E*TRADE requires you to deposit a minimum of $500 into your individual brokerage account within 60 days of your account creation to keep the account active. The company charges $9.99 per trade if you make fewer than 150 trades per quarter, and $7.99 per trade if you make more than 150.

If you have any problems filling out the application, the company lists its phone number and offers an online chat feature. Both the number and the link to the chat feature are located at the upper right-hand corner of the page.

Step 1: Start the application

To start the application process, go to the relevant page and select an individual account. You'll also need to specify whether or not you're a new E*TRADE customer. If you're not a current customer, you'll enter your first and last name and email address at the bottom of the page. If you're already a customer, just enter your user ID and password for the site. Once you've filled out these questions, click "continue" and head on to the next page.

Step 2: Enter your personal information

This page has two main sections that you'll need to fill out. The first section asks for the address of the primary account holder on the account, your phone number, your Social Security number, and the country you reside in. The company also asks for your marital status and the number of dependents you have. E*TRADE says it needs all of this information in order to verify the identity of people opening the account.

You'll also have to answer whether or not you've been notified by the IRS that you're subject to backup withholding and fill out your current employer information (if you're currently working).

E*TRADE will also ask if you're employed by a registered broker-dealer, a securities exchange, or the Financial Industry Regulatory Authority (FINRA). They will also ask if you're a director or policymaker of a publicly owned company, or a 10% shareholder of a publicly owned company. All brokerages are required to ask these questions, and you'll likely keep these boxes unchecked.

The last section on this page includes a few questions about your investment profile. The questions include your annual income, your liquid net worth, your total net worth, and how you'll be funding the account (e.g., personal funds, pension, gift, etc.).

You'll also be asked how you plan to use the E*TRADE brokerage account (long-term investing, savings for retirement, etc.), what your objectives are for the account, how often you'll trade, and your experience level. There's a drop-down list of answers for all of the investment profile questions, so don't be overwhelmed if you haven't thought out all of this beforehand.

You can also set up an additional person to have Power of Attorney over your brokerage account (so they can make trades, too) by downloading the form at the bottom of the page and sending it back to E*TRADE. If this isn't applicable, just skip this question. Once you've finished this section, click continue to move on to the next step.

Step 3: Set up the account

You'll select how you want to manage your uninvested cash on this page. Any time you have money in your E*TRADE account that hasn't been invested yet, or when you've sold shares and haven't reinvested the proceeds, the money goes into a money market fund, which is often called a sweep account.

You'll be given four options on this page as to what to do with your uninvested cash. The default is E*TRADE's Financial Extended Insurance Sweep Deposit Account. Hover over the question marks listed next to each option to see a description of each. There's also a link under this section that allows you to compare the choices in greater detail.

Keep in mind that any decisions you make here can be changed later, after the account is set up. So don't panic if you're unsure which cash management account is the best option for you.

You'll also be given the option to access money in your E*TRADE account with a debit card and/or an E*TRADE checkbook. You'll need at least $1,000 in the account to do either of these. For this how-to, we're leaving both of these options unchecked.

On this page, you'll also be given the choice to sign up for margin and options trading. These two investing techniques are risky, and new investors typically shouldn't use them. If you're reading this how-to, you probably don't want these two services right now. But you can find out more about margin trading and options here and here if you're interested.

Lastly, you can opt to have all of your E*TRADE documents (statements, trade confirmations, tax documents, etc.) sent to you via mail at the bottom of this page. The default is to get these online, which is the cheaper option (E*TRADE charges a handling fee for each paper statement sent to you via mail, unless there's an exemption).

Step 4: Confirm and submit

On this page, you'll simply review all of your information to make sure it's correct. At the bottom of the page, you'll also create a username and password to access the account. Once you do that, click "submit," and you'll be taken to a page with your account number. Keep this handy for your own reference.

From here, you'll see links for depositing funds into the account from the E*TRADE Customer Welcome Center. Remember, you have to do this within 60 days to keep the account active. There's also a form on this page that will allow you to deposit funds from your bank account. But you can go to the Welcome Center and take a look around first before you do all of this.

And that's it! Your E*TRADE online brokerage account is all set up.

Frequently asked questions