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Schwab Bank/Brokerage Lowers Rate On Uninvested Funds To .05%

MAKNYC
  |     |   324 posts since 2015

I missed this, and I suspect others did as well, but apparently Schwab considered the .45% they paid on free cash balances in brokerage accounts (including bank sweep and Schwab One) too high. It looks like this rate was lowered to .05% last month. Despite even the original rate being criminally low, Schwab felt free to quietly stick it to its customers.

Now I know most Schwab customers will suggest this won’t impact them because they invest their excess funds in purchased money market funds, but that is likely not completely true. As has been discussed earlier on these boards, Schwab purchased MMF settle at T+1 (unlike Fidelity), so there is a 1 day lag before invested MMF funds earn income. Schwab gets the use of that money, at the new reduced rate, for the one day. And that assumes you invest each day correctly, which is sometimes impossible to do because Schwab processes many cash credits after 4p EST (intentionally in my opinion). So unless you perfectly predict every cash inflow 1 day prior, including dividend payments, bond payments etc., and you have a margin account and you preemptively buy the MMF 1 day earlier, you are losing even more to Schwabs latest tactics.

I’m done venting and I’ve had a Schwab account since 1986, although most of my accounts had previously been transitioned to Fidelity. But it really gets under my skin how much this firm that I historically supported has completely lost its alleged customer centric focus to further its own profitability.

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Kirkland
  |     |   382 posts since 2014
Hi MAKNYC, As rates possibly stay structurally higher for longer, it just makes sense to do a partial transfer (no fees to do a partial transfer) of your income paying investments to Vanguard. Especially if you are reinvesting it regularly in Schwab money market funds. Vanguard settlement fund you earn Vanguard money market fund rate automatically from day 1, no lag. Schwab does offer the best brokered cd's, posts them sooner than at Vanguard or Fidelity, has more quantity etc., so I am saying it is nice to have a margin account and stocks at Schwab to be able to purchase brokered cd's quickly (immediately) that might not be available at Vanguard, but basically all your dividends and (bond/cd) interest at Schwab might as well be transferred out regularly to an FDIC insured high yield savings account.
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John19
  |     |   397 posts since 2022
MAKNYC actually helped me buy my first Schwab MMF a few years back on this site. I still have a lot to learn lol. I like Schwab as well and favor them most, but I wish they had a system like Fidelity.
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MAKNYC
  |     |   324 posts since 2015
Kirkland, as I mentioned most of my assets had been previously transferred to Fidelity, where this is not (currently) an issue. But I have a my original Schwab account open for multiple reasons, most of which would not be applicable to others here. 1) Diversification to minimize counterparty risks, 2) sentimental as this account was opened when I was a minor and actually needed a co-signer to do so and 3) since I sell short and lend out stocks supply/demand is different among brokerage firms. #3 is particularly influenced by Schwabs behaviors as they mark to market shorts daily (compared to Fidelity once a week) so a cash balance equaling that number must be in the account (and not the MMF) daily which requires keeping a buffer balance to cover a typical daily mark to market. If the amount is not sufficient, due to my falling asleep at the wheel or a big daily move, any collateral balance shortfall becomes a margin loan for a day, which is even worse at around 12%! Because of their MMF settlement of T+1 I need to stay a day ahead just to cover routine market movements. Fortunately I suspect there aren’t many people who short stocks here on DA!
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Kirkland
  |     |   382 posts since 2014
MAKNYC, I heard someone say that for every 2 stocks you buy (long), you should short 1. You must be making lots of money now on all those shorts! Not sure you will ever be able to relax and fully retire until you can give up the daily stress that your detailed trading entails. You must really enjoy the challenge. I too opened my first Schwab account when I was young, in the 1980's, when I listened to Bob Brinker on the radio, the daily Nightly Business Report on my tv, and of course once a week watched Louis Rukeyser on Wall Street Week. I could never give up my Schwab account.
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w00d00w
  |     |   360 posts since 2012
as a publicly traded company, Schwab is stuck trying to appease both its shareholders and brokerage customers. this move to 0.05% on "uninvested cash" during a time when the Fed funds rate is in the 4s is a clear signal on which group is more important to the company.
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