Schwab Announces Zero Commission Stock Trades--E*Trade and TD Ameritrade Tanking

[catotx]

Out of what Fidelity allows as compared to what other firms normally allow, it's a valid claim. Current rates for our cash sweeps are:

Fidelity joint brokerage - FZFXX 1.55%
Fidelity Roth IRAs - SPAXX 1.59%
Fidelity CMA and HSA (mine) opened earlier this year - FDIC .94%
Fidelity HSA (DH's) opened in August - FDRXX - 1.65%

(FDIC was the only option given for my HSA at the time. Later this month, Fidelity is supposed to be opening up MMFs as an option for previously opened HSAs. DH was able to choose one right at the start. I'll be changing mine to a MMF ASAP.)

Charles Schwab joint brokerage - .12%

TD Ameritrade SDBAs - FDIC .10%

E-Trade rates range from .01% to .35%, depending on balance

Compared against the brokerages mentioned, yes Fidelity's sweep is higher.

Compared among all the MMFs offered by Fidelity, no, the sweep allowed is not the highest.

And Fidelity has also conveniently not mentioned Vanguard, which uses a sweep MMF with a yield that is higher than what Fidelity is offering.

Again, Fidelity's claim was "automatically providing the highest interest rate on their cash sweep".

 

[gwraigty]

Compared against the brokerages mentioned, yes Fidelity's sweep is higher.

Compared among all the MMFs offered by Fidelity, no, the sweep allowed is not the highest.

And Fidelity has also conveniently not mentioned Vanguard, which uses a sweep MMF with a yield that is higher than what Fidelity is offering.

Again, Fidelity's claim was "automatically providing the highest interest rate on their cash sweep".

Yes, I forgot to list the rate for the half of DH's 401k funds remaining with Vanguard after the VBO switch out: VMFXX 1.91%

The above points are true and show that the quote in the article was worded poorly. Again, the decision to not match the no-commission policy of their major competitors, under the rationale that the higher cash sweep rates make up for that, is a bit thin to me. Whether it will cost them a significant amount of business has yet to be seen.

 

[zippy2020]

Here's the explanation:
Your Stock Trades Go Free but Your Cash Is in Chains
Schwab made a big splash this past week by eliminating commissions. It’s still making money off you elsewhere.
WS Journal by Jason Zweig, Oct. 4, 2019

....You no longer will pay a few bucks in commissions to buy or sell a security at these firms. But Schwab and other brokerage firms are in business to make money, and one way they often do that is by milking clients’ cash. When you trade for free, you still pay—at a different tollbooth.

....Schwab can offer such cheap options partly because of how it handles investors’ cash. The firm automatically sweeps idle cash not into money-market mutual funds or other assets that could yield about 2% at today’s rates, but into its own bank, which pays peanuts.

....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 [required] cash. ....With $41 billion in assets, those portfolios hold about $4 billion in cash. Conservatively assuming Schwab nets about 1.5% by lending out that money through its bank, the firm is making roughly $60 million a year on it. The clients, meanwhile, are earning less than $25 million.

Schwab discloses all this. The rate it pays on clients’ cash “may be higher or lower than...on comparable deposit accounts at other banks,” warns a disclosure from Schwab Intelligent Portfolios. “Schwab does not intend to negotiate for rates that seek to compete with” other cash options, adds the disclosure.

Furthermore, the document states, if you need to withdraw money from your Schwab Intelligent Portfolios account, the firm may sell some of your ETFs—potentially triggering a taxable capital gain—to restore your cash balance to its required level.

.... according to David Goldstone of Backend Benchmarking, a research firm in Martinsville, N.J., that tracks automated online investing services, no other roboadvisor requires clients to hold even as much as 10% in low-yielding cash.

+++++

So even if you are not using the roboadvisor services; others are and that's who the brokerage is making money from. A LOT of money.

 

[Steeler75]

Spoke with my account VP at Fidelity this week to get some free trades and he allocated a few hundred for me. During the conversation he intimated that this should hold me over until Fidelity eliminates commissions on trades.

Seems like it’s now only a matter of time until it’s implemented.

 

[jetpack]

Ally site doesn't seem to be updated yet on the news. https://www.ally.com/invest/self-directed-trading/ or, did I read that wrong?

I have accounts at fido and vanguard.. hoping one goes zero soon!

 

[gwraigty]

Spoke with my account VP at Fidelity this week to get some free trades and he allocated a few hundred for me. During the conversation he intimated that this should hold me over until Fidelity eliminates commissions on trades.

Seems like it’s now only a matter of time until it’s implemented.

That would be nice.

Ally site doesn't seem to be updated yet on the news. https://www.ally.com/invest/self-directed-trading/ or, did I read that wrong?

I have accounts at fido and vanguard.. hoping one goes zero soon!

When I clicked through your link, it said $0. Maybe it was updated after you looked.

 

[rathail]

E*Trade does the same

E*Trade has a "Bank" savings, not a sweeps, at 1.75% and also now has free trades.
The stock price swing is a silly day trading knee-jerk reaction.
Schwab somehow just went first and got all the press.
I'm an investor not a day trader. Although it does make for a buying opportunity.

 

[meierlde]

Ally Invest has joined the party:

Ally Invest Cuts Trading Commissions

The last paragraph notes that Fidelity and Vanguard are still holding out.

At vanguard if you have a Flagship account its 25 free trades a year. and others are $2. If this is enough depends on how much you trade. unlimited free trading is good only if you trade a lot.

 

[gwraigty]

I'm an investor not a day trader. Although it does make for a buying opportunity.

As am I. Some press put a spin on this as though it's only good news for day traders/short term traders. It's also good news for people who regularly have new money to invest in ETFs.

 

[foxfirev5]

Fidelity has joined the club. The bad news is that I only have $9.00 cash available to trade.

 

[jetpack]

Ok, Fidelity is in! And my new trading site for now.

I assume Vanguard will follow as well. I can't imagine that trading fees are a big part of their business anyway.

 

[gwraigty]

Better late than never, Fidelity! Plus, they're still going to give higher MM rates on cash.

 

[Qs Laptop]

Although it does make for a buying opportunity.

I got some AMDT last Friday.

 

[kcowan]

I got some AMDT last Friday.

I have been looking at AMTD but it does not seem to be recovering?

 

[Qs Laptop]

I have been looking at AMTD but it does not seem to be recovering?

Not yet. Had a nice move today, though. I'm solidly in the black.

ETrade stock has recovered a bit more.

AMTD's earnings report comes out Oct 21st. They have beaten earnings estimates the last four times.

 

[Qs Laptop]

Not yet. Had a nice move today, though. I'm solidly in the black.

So far, another nice day. It's up about 6.8% since Friday.

 

[lucky penny]

E*Trade has a "Bank" savings, not a sweeps, at 1.75% and also now has free trades.
The stock price swing is a silly day trading knee-jerk reaction.
Schwab somehow just went first and got all the press.
I'm an investor not a day trader. Although it does make for a buying opportunity.

Thanks for this tip, rathail. I just ascertained that the cash in my eTrade brokerage account is earning the munificent sum of .01%. (The balance isn't much, but still!) After some searching on their website, I found their "premium savings" account paying 1.75%, no minimum balance, no fees, limit of 6 transfers per month. That suits me fine, so I opened that account online & will park the unused cash there till I need it.

 

[Coolius]

lucky penny, can you provide the symbol of the fund? I manage a small E*trade account for my daughter, she has a few thousand there in cash, thought I'd put the cash to better use.


Thanks!

 

[lucky penny]

lucky penny, can you provide the symbol of the fund? I manage a small E*trade account for my daughter, she has a few thousand there in cash, thought I'd put the cash to better use.


Thanks!

It's not a MM fund but a savings account (FDIC insured) so I don't think it has a symbol. When you log in to eTrade, click on "Banking" (one of the choices in the bar across the top that's below the bar that says "Accounts" and "Trading"), then "Explore Banking" in the drop-down box; then you'll see "Premium Savings Account" as one of the choices.

Or, after you log in, click on "Open Account" (which you'll see when you click on the 3 dots at the far right of that bar), and that takes you to a screen where "Premium Savings" is one of the "Most Popular" options.

 

[dirtbiker]

Thanks for this tip, rathail. I just ascertained that the cash in my eTrade brokerage account is earning the munificent sum of .01%. (The balance isn't much, but still!) After some searching on their website, I found their "premium savings" account paying 1.75%, no minimum balance, no fees, limit of 6 transfers per month. That suits me fine, so I opened that account online & will park the unused cash there till I need it.

lucky penny, can you provide the symbol of the fund? I manage a small E*trade account for my daughter, she has a few thousand there in cash, thought I'd put the cash to better use.


Thanks!

I've been using this savings account for a few months now to park all of my cash until needed. It's as good or better return than a lot of CDs, but this is completely liquid. I already have Etrade, so it's super easy for me to transfer money back and forth.

Here's a link to it: https://us.etrade.com/bank/premium-savings-account

 

[NW-Bound]

I have accounts at both Schwab and Merrill Edge. At Merrill Edge, I have had no-fee trades for stocks and ETFs, and $3 fee for option trades, plus $0.30 per contract.

Last week, without announcement, the option trade fee at Merrill Edge was lowered to $0 + $0.35 per contract. Schwab fee for option trades is $0 + $0.65/contract. However, buy-to-close trades to close out worthless options are free with Schwab.

Just as I was thinking about moving money out of Merrill Edge into the Schwab accounts, not really due to the fees but due to the poorer service at Merrill Edge compared to Schwab, I may stay a bit longer.

I am not a high-maintenance account holder, and have needed them to do a thing for me once every 5 to 10 years. Schwab has always been very responsive and efficient, while dealing with other brokerages can be pain in the tush.

 

[audreyh1]

I remember that within hours of Fidelity lowering commissions to $4.95, Schwab matched it. I wonder if Fidelity will match this.

Well, to my delight with a recent stock sale I discovered that Fidelity commissions are zero. Wow!

 

[gwraigty]

Well, to my delight with a recent stock sale I discovered that Fidelity commissions are zero. Wow!

Yes, Fidelity announced zero commissions the week after Schwab and others did, as noted in post #60.

 

[audreyh1]

Didn't catch that before, probably because I was traveling. Just realized on DH's recent sales that only fees were charged. Nice!

 

[OldShooter]

Didn't catch that before. Just realized on DH's recent sales that only fees were charged. Nice!

Yeah. They are really slitting each others' throats.

I was talking to my Schwab guy on another matter and kidded him that I was glad the zero fee thing had not gotten him laid off.

What he told me was that at Schwab the % of revenue from these fees was relatively low, but at other houses (TDAmeritrade, probably) it could be 15%. So I think this was a very tactical move on Schwab's part, not so much to attract business as to hurt competitors.

Here's a story that backs that up: https://www.forbes.com/sites/sergei...sing-from-slashing-trading-fees/#3d70e3f21494