Schwab has built a great reputation during its operation as a broker, no doubt. But there are always things that can sound off the alarm if you dig a little. These things should be of great interest to you if you’re considering opening a brokerage account with them
So, why is Schwab bad? Well, there are some areas where they seem to fall short such as margin rates which are very high and hefty transaction fees when it comes to mutual funds. There are also many complaints about their customer support service.
With that being said, there is honestly no reason to doubt whether your money is safe with them or not. But based on your needs, Schwab may be a bad choice here.
In this article, I will go into more detail about the potential problems you may have to face as a customer and let you decide for yourself if they’re enough to make you look elsewhere.
But before I do that, I will have to briefly mention what generally makes them a good broker for most for the sake of being just…
Why Schwab is Generally Good
First of all, Schwab can appeal to long-term investors who just buy and hold because they charge no inactivity fee.
An inactivity fee can come in the form of a penalty if you don’t make a certain number of transactions per year or month.
There are many brokers out there who charge it to make up for what they lose because of commission-free trading. But though Schwab has joined the commission-free movement, they won’t charge you any fee if you don’t trade frequently enough.
Schwab is also very famous for its platform and tools. They offer a great stock screener that easily filters trading opportunities according to your own criteria and they equip you with easy-to-access real-time reports and news.
On top of these, they have their own analysts giving you their equity ratings and they offer a quarterly magazine free of charge as well.
These may be positive factors that don’t win the hearts of every investor and trader out there, of course. So, let’s get to specifics about what makes Schwab bad now…
3 Reasons Why Schwab Is Bad
- High Fees for Mutual Funds
If you’re interested in opening a Charles Schwab account for investing in mutual funds, I may have some bad news for you.
Schwab has a program called OneSource that includes around 500 ETFs. Everything that is included there is free of charge to transact. But many traditional mutual funds that aren’t on the list can cost up to $49.95 per purchase, according to them.
This can be quite inconvenient for someone who is looking to make frequent contributions to a mutual fund or think they will need to transfer their money to another fund in the future.
- High Margin Rates
Margin traders partly rely on low margin rates to increase their performance. Sadly, Schwab can disappoint in this regard as well.
For margin traders with a debit balance of less than $24,999, they are charged a rate of 8.325%. This is especially high. As a point of reference, M1 Finance has a margin rate of 3.5% (and only 2% for the plus subscription).
Of course, the more you borrow, the further down the margin rate goes with Schwab. But it won’t go lower than 6.575% and you only get this if you have a debit balance of at least $250,000.
For margin traders, this can be a huge roadblock to their trading success as margin rates eat away their profits.
- Negative Feedback
During my research on Schwab, I stumbled upon some concerning stuff; there seem to be a lot of complaints about their customer service.
Trustpilot, in particular, houses overwhelmingly negative reviews that mostly seem to indicate a bad customer service experience.
More specifically, customers complained about long hold times while they tried to resolve serious issues about their trades. It seems that short-term traders are the ones who were punished the most by this.
It’s also worth mentioning that there were some complaints about Schwab’s platform which wasn’t responsive in many instances.
But the most disturbing phenomenon of all here is that many of the customers who report a negative experience have been using Schwab for many years.
Of course, you should take reviews with a grain of salt. But when there is an obvious pattern of users disappointed by the customer support quality, it’s a huge red flag which you need to keep in mind.
All in all, Charles Schwab is a reputable broker that many long-term customers would vouch for. There is a big level of trust here and you can be sure that your money is safe with them; to say that they’ve been around the block is a great understatement.
Plus, their research-rich platform and various tools for both fundamental and technical analysts seem like they won the hearts of many investors.
With that being said, their customer service which has gotten worse recently, their high prices in mutual funds, and high margin rates may be things that you need to keep in mind while moving forward with this broker.
Now, I hope this article was useful. If it was, please consider sharing it on social media.
Also, let me know in the comments if you got what you were looking for. If not, don’t hesitate to tell me where you need me to clarify further…
Thanks for reading and talk to you next time!