At The Wall Street Journal, Jason Zweig explains the treatment customers are receiving at Schwab. He writes (abridged):
The term “brokerage” is becoming a misnomer. Firms like Schwab are more like banks than brokers.
In the first half of 2019, Schwab clients moved $58 billion into money-market funds and other higher-yielding choices. But most don’t bother. Even worse, many don’t have a choice because they hold accounts that are required to keep cash at low yields in Schwab’s own bank.
That has been a bonanza for the firm.
Schwab pushed $11.8 billion out of higher-yielding money-market funds into deposits at its own bank in the first half of 2019, according to the company.
As of June 30, deposits at Schwab’s bank totaled $208 billion.
This week, clients were earning between 0.12% and 0.55% on those balances.
When clients invest in Schwab Intelligent Portfolios, its roboadvisory service that offers preselected baskets of ETFs, between 6% and 30% of the money goes into cash.
Schwab doesn’t use money-market funds or short-term Treasury debt, which could earn nearly 2% at recent rates. Instead, it shunts the cash into Charles Schwab Bank, which currently pays 0.55% on the money—and then turns around and lends it out at roughly 2%.
Read more here.
Originally posted October 7, 2019.