Merrill Lynch to Pay $39 Million in Settlement Over Low Interest on Client Cash

Bank of America's Merrill Lynch unit has agreed to a $39 million preliminary settlement to resolve a class-action lawsuit that claimed the firm paid brokerage clients substantially below-market interest rates on uninvested cash. The proposed settlement, which awaits approval from a federal judge, addresses allegations that the firm's cash management practices unfairly boosted its own profits at the expense of retirement account holders.

Settlement Details

According to a filing in Manhattan federal court, the settlement resolves claims from holders of Merrill Edge online brokerage accounts between December 15, 2016, and March 15, 2020. The lawsuit alleged that during this period, Merrill Lynch paid interest rates between 0.05% and 0.14% on idle cash balances, while other brokerages were offering rates around 2%.

As part of the agreement, Merrill Lynch denied any wrongdoing. The settlement must be approved by U.S. District Judge Valerie Caproni to be finalized.

Broader Scrutiny of 'Cash Sweeps'

The practice of brokerages moving, or "sweeping," uninvested client cash into affiliated bank accounts has faced increasing legal and regulatory challenges, particularly as central bank interest rates rose in 2023 and 2024. These lawsuits often allege that the interest rates offered by the brokerage's affiliated bank are significantly lower than what clients could earn elsewhere.

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This is not the first time Merrill Lynch has faced such claims. The firm previously agreed in January 2025 to pay $25 million to settle similar cash sweep allegations from the U.S. Securities and Exchange Commission, also without admitting or denying the findings.

A Second Case Moves Forward

In a separate but related development, U.S. District Judge Margaret Garnett ruled that Merrill Lynch must face most of another proposed class-action lawsuit concerning its cash sweep programs. This second case, which covers both retirement and non-retirement accounts, will be allowed to proceed on claims that Merrill Lynch breached its contractual duty to provide a "reasonable rate" of return on client cash.

Merrill Lynch had argued to narrow the case, noting it had removed the "reasonable rate" language from its client agreements in 2023 and 2024. However, the judge's decision allows the plaintiffs to continue pursuing their claims.