The Charles Schwab Corporation is one of the biggest multinational financial services companies. It’s among the world leaders in banking, electronic trading, and wealth management, both for retail and institutional investors. With over 360 branches, it is among other things, the third-largest asset manager in the world, managing over $5.9 trillion in client assets.
With Schwabs your brokerage account is insured by the Securities Investor Protection Corporation (SIPC). A program created to protect against the loss of customer assets at the brokerage. Your savings account, on the other hand, is protected by the Federal Deposit Insurance Corporation (FDIC).
When investing or opening a deposit it is always important to take into consideration all the risks and what programs are in place to protect you against them. Even with a giant like the Charles Schwab Corporation. So let’s dig a little deeper and explain how it all works.
What does the Security Investor Protection Corporation cover?
In the quite unlikely eventuality of your brokerage firm failing, your stocks, bonds, and mutual funds will be covered up to $500k of which $250k in cash, by the Security Investor Protection Corporations. Although keep in mind that the SIPC does not protect against losses caused by a decline in market value. So if you decide to invest and take a risk that just doesn’t go as planned, your money is of course lost.
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Other than the SIPC does Schwab provide additional insurance to my brokerage account?
On top of the SIPC customers of Charles Schwab & Co., can receive more additional coverage. If all the funds covered by SIPC protection are exhausted, Schwabs has an “excess SIPC” fund of $600 million that will help ensure more customers’ claims are covered.
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What does the Federal Deposit Insurance Cover?
The Federal Deposit Insurance Corporation (FDIC) is an independent agency backed by the credit of the United States government. Founded in 1933, it has a purpose is to protect depositors’ funds placed in banks and savings associations. Since then the FDIC has protected all savings, every last penny, of clients in FDIC-insured banks.
The insurance covers up to $250k per depositor of an insured bank, the amount is also based on ownership category and includes accounts held singly or jointly. The same goes for trust-owned accounts.
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What Charles Schwab & Co. products are FDIC-insured?
All deposits at Schwab Bank & Co. are insured, up to the $250k limit by the FDIC. This includes riskier, higher yield accounts such as the Schwab Bank High Yield Investor Checking accounts and Schwab Bank High Yield Investor Savings accounts.
Charles Schwab & Co. Inc. can also act as a deposit broker. What’s a deposit broker? Well in simple terms, a deposit broker is an individual or firm that places the investor’s deposits in insured depository institutions. They offer investors a wide array of fixed-term investment products. These are extremely low-risk returns that over time can obviously compound into significant wealth.
So in these cases, the FDIC insurance you had at your bank will be available to you through your Schwab Brokerage Account in two ways:
- Certification of deposits. Simply put, products offered by banks provide an interest rate premium in exchange for the customer agreeing to leave the money untouched for a predetermined period of time in the account. Schwabs has a program called OneSource that allows you to purchase CDs from banks insured by the FDIC all across the country. The CDs you purchased through Schwab are joint with other deposits you hold at each institution and will be FDIC insured up to $250k per bank. And through OneSource, you’ll be able to purchase them from more banks so as to have a bigger FDIC coverage.
- Bank sweep. Your Schwab brokerage account offers you great options everyone should take into consideration, called Bank Sweep. Thanks to it your cash balance will be automatically “swept”, moved, to a deposit account in a Schwab-Affiliated Bank which is of course insured up to $250k by the FDIC. Although keep in mind that your coverage will be by calculated summing up all your accounts at Schwab-Affiliate Banks. It doesn’t matter whether the account is opened directly or by Schwab’s brokerage service on your behalf. They’ll still be added together with all your other deposits, which means your FDIC insurance coverage will be based on that.
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So just how safe are Schwab brokerage accounts?
To answer that question first let’s consider that Charles Schwab & Co. is the 3d largest asset manager in the world and the 13th largest banking institution. As mentioned before it manages $5.9 trillion in client assets, with over 29 million active brokerage accounts, 2.1 million corporate retirement plan participants, 1.5 million banking accounts. Charles Schwab & Co. is a giant, there’s no looking past that. So it is safe to assume that it’s just too big to fail, in our lifetime at least.
But let’s say the apocalyptic scenario plays out, an alien invasion or such, and lo and behold it does fail. Well, your beloved assets would still likely be covered. Your brokerage account is in the safe hands of the Security Investor Protection Corporation (SIPC) that will cover up to $500k. And if that isn’t enough Schwab has another $600 million in “excess SIPC” funds that covers what’s left.
Your bank deposits and savings, up to $250k, are covered by the Federal Deposit Insurance Cover (FDIC). A program created and backed by the U.S. government. Well in the eventuality of a doomsday scenario or even just a severe economic depression, the U.S. dollar could collapse and in that case, your savings would likely not be covered. Is that impossible? Not really. But Charles Schwab & Co. has to first fail for this scenario to play out, so it is very, very unlikely. So in conclusion, rest assure and don’t lose sleep on it, with Charles Schwab & Co. your assets are as safe as they get.
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