Merrill Lynch Paid Retirement Account Investors ‘Unreasonably’ Low Interest Rates, Class Action Claims

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A proposed class action claims Merrill Lynch has paid investors “unreasonably” low interest rates on cash in their retirement accounts.

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According to the 50-page case, the Bank of America subsidiary requires retirement account customers to sign a “self-directed investing client relationship agreement” in which it promises “[t]he interest paid on retirement account assets will be at no less than a reasonable rate.” However, when market interest rates rose beginning in March 2022 and into 2023, Merrill continued to pay only 0.01 percent annual percentage yield (APY) interest on cash in retirement accounts with less than $1 million of assets under management (AUM), the complaint relays.

“That is equivalent to $1 of interest on $10,000 in cash per year,” the suit says, adding that investors managing greater assets have fared “only modestly better.” The lawsuit shares that beginning in November 2022, those with between $1 million and $10 million in AUM and those with more than $10 million in AUM were paid a high of only 0.30 and 1.06 percent APY, respectively.

The filing notes that among major brokers, Merrill has consistently paid the lowest rates on swept cash—i.e., uninvested cash sitting in an investor’s brokerage account that gets automatically transferred to a higher interest-earning account.

For example, the suit says that in August 2023, Fidelity Investments began paying retirement investors in all AUM tiers as much as 2.72 percent APY on swept cash, and Baird, as of September 2023, paid retirement investors anywhere from 2.07 to 4.15 percent on swept cash. 

The plaintiff, a Michigan consumer, says that when she opened a Traditional IRA account at Merrill Edge in October 2020, she did not find it unusual that the defendant paid her an interest rate of 0.01 percent on her swept cash because market interest rates were “essentially zero” at the time. When the federal funds target rate began to rise beginning on March 17, 2022 and into 2023, interest rates on cash the plaintiff held in accounts at Flagstar Bank and Fidelity Investments increased in conjunction, the suit says.

Despite promising the plaintiff that it would pay her reasonable interest rates, Merrill still provided the woman only 0.01 percent APY by March 2023, the case says.

“Merrill pursued a pricing strategy to maximize profits,” the case contends. “The sweep rates were set by [Bank of America] unilaterally in a manner that was inconsistent with the fair market value standard and so are not presumptively reasonable rates.”

The lawsuit looks to represent any person or entity that maintained Merrill Edge retirement accounts anytime since March 17, 2022.

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