Nosce te ipsum
| The account is FDIC insured. They may make overnight loans to other banks. It may be cheaper for them to transfer money to your brokerage sweep account from their own checking institution then from an outside institution. Yes, the funds in your High Yield Investor Checking account are insured, in aggregate, up to $250,000 based on account ownership type, by the Federal Deposit Insurance Corporation (FDIC). https://www.schwab.com/checking/faqs |
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Optimistic Cynic
| I will be with Schwab soon myself as a result of its acquisition of TD Ameritrade.
To address your question, there are many ways a broker generates income, including charging trading fees and getting kickbacks on fees generated by the exchanges. There is a new law that requires fiduciaries to provide a "Customer Relationship Summary" to their customers annually. In fact, I just got one from Ameritrade, dated 6/30/2020, one of the questions addressed is "How do your financial professionals make money?" Mildly interesting, if not exactly eye-opening.
If you ask Schwab "where's my CRS?" I'd be interested in knowing their response. |
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quarter MOA visionary
| quote: I'm curious how they make money
Curious indeed. When I opened my Scwab account years ago ~ trades were about $39-$40 as I recall, then later dropped to around $15 then around $7 or so and now FREE. They obviously are getting paid on the back end somewhere. As far as "borrowing" money I believe you can use the Credit Card (or check) to borrow against your equity. I never tried it so don't know any more than that. |
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Member
| I am truly not sure your question. EVERY bank takes deposits and in the end uses that money to make loans or do other activities that actually make them money. The fed enables that with the fact that the ratio between those two activities doesn't have to be direct.
“So in war, the way is to avoid what is strong, and strike at what is weak.”
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Member
| quote: Originally posted by Aglifter:
So, I have an account with Charles Schwab - and I'm very happy with it. (Except when it took a week to have my debit card replaced.)
To my knowledge, they do not loan money, other than to buy stocks on margin. Could they be using the deposits to fund those loans?
No, that would be illegal. Investments/ Securities are covered by SIPC, banking is covered by FDIC, and are not interchangeable between the two.
I'm curious how they make money off their banking - TMK, they do not make mortgages, etc.
They directly do not make mortgages, but do through Quicken Loans, with is owned by parent Company, the Charles Schwab Group. They likely make money by pool investing in short term securities and paying next to nothing. Consider this, layering investments (strips) that come due at 2-4 week intervals will significantly increase their yield return, while they are paying you, what 10 basis points? They are likely making 5-6x whatever they are paying you in interest.
Would they be able to use the deposits to buy loans?
buy loans - no, but federally insured deposits, CD's, and other liquid investments yes. They may be able to fund loans to clients with ample security, such as an auto loan, but I don't know if they even do that.
quote: Originally posted by ElToro:
Schwab owns quicken loans and makes mortgages. I would bet almost all are sold to other investors not held in house. It’s very possible the banking is a loss leader to get you to open a brokerage account
technically, they are both owned by a parent company, but you are correct, Quicken does not seem to keep a long term mortgage portfolio, and is simply put, an originator who strips them and sells them. They get paid to make sure everything is done to be clean, and they put into an MBS, and sold as an investment, maybe even to Charles Schwab customers.
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