Cash Management at Schwab

[Tranquility Base]

I am considering moving my retirement and non-retirement accounts. Basically I have narrowed it down to Fidelity or Schwab. They both have their plusses and minuses.

What I am struggling with is how Schwab handles uninvested cash. It seems that uninvested cash in Schwab brokerage and retirement accounts goes into an uninvested cash account where it earns only .45%. It doesn't seem possible to have the cash be automatically swept to an account paying higher interest. So with the initial cash I am using for experimentation, I invested it in Schwab's Value Advantage Money Fund Investor Shares (SWVXX). But if I want to invest the funds in something else, I have to first sell part or all of the money market fund I invested the cash in, then wait 24 hours for the transaction to clear and the sale proceeds to be deposited in the uninvested cash account. In other words, I can't just walk into the grocery store, load up my cart, and go to the check-out area and pay for my purchases. If I don't want to leave cash sitting around and basically donate the interest to Schwab, I have to plan at least 24 hours in advance so I have sufficient cash in the uninvested cash account. This seems so odd, counterintuitive and a bit customer unfriendly. It isn't this complicated at Vanguard or Fidelity.

There are a lot of things I like more at Schwab than Fidelity and vice versa. But this aspect of Schwab is sticking in my throat a bit. For those of you who have accounts at Schwab, how do you handle this? Am I missing something or making too big a deal out of it? I am trying to avoid transferring my accounts and making it more difficult than necessary to handle them myself.

 

[pb4uski]

You are on to one of the things that I dislike about Schwab. For reference, I moved all of my accounts from Vanguard to Schwab over the last year other than i-bonds and HSAs which Schwab doesn't offer that I have at Fidelity.

There is no attractive sweep option at Schwab like at Vanguard or Fidelity, so I have to manually sweep money from the 0.45% settlement account to 4.48% SWVXX occasionally.

What I have found is that "sometimes" you can do trades for the sum of cash available and SWVXX. In those instances, you end up with a negative balance in your settlement account and just need to sell some SWVXX before any trades settle to cover the settlement. SWVXX settles that night.

For some trades that won't work so I call the 800 number or my Schwab broker and have them place the trade for me.

Luckily, I don't trade that much so it is a minor hassle.

I've run into that for new issue bonds that might not settle for weeks. For example, say I have $100k in my settlement account from a maturity and buy $100k of a new issue bond that will be issued in 3 weeks. My settlement account shows as $0 as soon as I buy the bond. But I don't want to have $100k sitting at 0.45% for three weeks. So I have to call my broker and he can put in an order to buy $100k of SWVXX even though my settlement account is $0 and after that SWVXX purchase settles, I have $100k of SWVXX and -$100k in my settlement account. Then I nned to put a reminder in my phone to sell $100k of SWVXX before the new issue bond settles.

The thing that I really like about Schwab is that I have the phone numbers of two people and when I call those numbers they actually answer the call or if they don't and I leave a voicemail they get back to me promptly. Ditto for email responses.

 

[braumeister]

I keep money at both F and S. The Schwab MM account restriction is annoying, but not really a big deal for the very small number of trades I make a year. And while Fido lets you use a high interest MM account as a sweep (FZDXX), they also have a $100K minimum on it for non-retirement accounts, so there is that on the other side.

But at the bottom line, it's really so easy to make transfers between accounts and between brokers these days that I don't mind putting up with small nuisances like these.

 

[COcheesehead]

At Fidelity I use FZDXX paying 4.45% where I can. Where I can’t, I am “forced” to use a sweep account that pays 4.25%. Not a big deal.

 

[PaunchyPirate]

I just switched to Schwab in January from Vanguard. I’m still getting used to this characteristic, but I AM getting used to it. Over time, I don’t do all that many trades, so I can live with it. Recently, I have been buying T-Bills. I have found that I can put in my trade for the T-Bill with no cash in the account. Once that order is accepted, I transfer enough money from SWVXX to cover the buy. The money appears as cash in my account overnight and the T-Bill gets purchased the next day. The T-Bills take a couple days to settle, so this works fine. I will continue to learn how far I can push this timing. I haven’t tried this for more immediate purchases.

I can live with it. So far, I like Schwab quite nicely and am happy I left Vanguard.

 

[OldShooter]

This is a consequence of elimination of trading fees. All brokerages that cut trading fees have had to scramble for alternative revenue. One of Schwab's answers was to skim the float by sweeping into Schwab bank with consequent low rates. I have actually been expecting Fido to follow, but maybe they have found other less visible ways to enhance revenue.

We are investors, not traders, so this is not a big deal to us. I just take the swept funds and buy SWVXX. When I sell, it settles the next day, so other than the hassle it's not much of a negative. If I was a trader and needed immediate access to significant funds on a regular basis I would probably go with another broker. Life's a tradeoff.

 

[Tranquility Base]

There is no attractive sweep option at Schwab like at Vanguard or Fidelity, so I have to manually sweep money from the 0.45% settlement account to 4.48% SWVXX occasionally.

For some trades that won't work so I call the 800 number or my Schwab broker and have them place the trade for me.

Luckily, I don't trade that much so it is a minor hassle.
The thing that I really like about Schwab is that I have the phone numbers of two people and when I call those numbers they actually answer the call or if they don't and I leave a voicemail they get back to me promptly. Ditto for email responses.

Thanks for the confirmation that there is no attractive sweep option at Schwab. I was hoping I just hadn't figured out how things work at Schwab yet. At least I can quit looking for something that doesn't exist.


I don't trade that much either so in the end it will be a minor hassle. But after the initial transfer of accounts, I want to make some adjustments and during that period of time the lack of an attractive sweep option will be more of a hassle.


I have only talked to one Schwab person in depth, so far, and I think he is considered my Schwab representative, at least for now. It was a good visit and he was helpful. Unfortunately he is on vacation for about 10 days but to his credit he did give me a "heads up" that he'd be gone. Otherwise, it seems that when you call the general customer service number, you are going to talk to at least one "friendly voice" who can't really do much for you but will transfer you to someone else who hopefully has more experience. It'll be nice when my representative is back at least to cut down on the waiting time every time I call with a question. I'll just compile a list of my questions as they occur to me so I can review them all with him when he returns.

 

[Tranquility Base]

I just switched to Schwab in January from Vanguard. I’m still getting used to this characteristic, but I AM getting used to it. Over time, I don’t do all that many trades, so I can live with it. Recently, I have been buying T-Bills. I have found that I can put in my trade for the T-Bill with no cash in the account. Once that order is accepted, I transfer enough money from SWVXX to cover the buy. The money appears as cash in my account overnight and the T-Bill gets purchased the next day. The T-Bills take a couple days to settle, so this works fine. I will continue to learn how far I can push this timing. I haven’t tried this for more immediate purchases.

I can live with it. So far, I like Schwab quite nicely and am happy I left Vanguard.

I haven't figured out yet how to do one reply with quotes from multiple posters yet. It's on my list of To Dos.


I would guess that over time I would get used to it too although patience is not a virtue I am known for. When I called Schwab today, however (was forwarded to a broker in Tampa), I was told (or at least given the impression), that I would have to sell the money market fund first in order to have sufficient cash in the uninvested cash account the next day, at which point I could use the uninvested cash to buy whatever I was interested in buying. So basically a two day process. When my representative returns to the office I will ask him what the procedure is and where things can be fudged a bit.

 

[Tranquility Base]

This is a consequence of elimination of trading fees. All brokerages that cut trading fees have had to scramble for alternative revenue. One of Schwab's answers was to skim the float by sweeping into Schwab bank with consequent low rates. I have actually been expecting Fido to follow, but maybe they have found other less visible ways to enhance revenue.

We are investors, not traders, so this is not a big deal to us. I just take the swept funds and buy SWVXX. When I sell, it settles the next day, so other than the hassle it's not much of a negative. If I was a trader and needed immediate access to significant funds on a regular basis I would probably go with another broker. Life's a tradeoff.

In the long run I am an investor too, and not a trader. It's still nice to have a little "dry powder" sitting on the side so that when there is a downturn in the market, like today, you can pounce on an opportunity if you feel the urge. If I did that with Schwab, I'd be leery of keeping very much uninvested cash around, not knowing how long it might be until I needed it right away.


The no commission business model has to be paid for someway and this is the way Schwab has chosen. For the sake of people having choices, I hope your expectation that Fidelity might follow suit is wrong, but I wouldn't be surprised if you are right.

 

[Texas Proud]

To OP.... like you I am a bit miffed at such a low interest rate for cash in settlement account... but I did move a lot of money to Schwab and will have to live with the movement of cash...


BUT, I am looking at moving my Vanguard to Fidelity and having that be where I have cash sitting around...



With interest rates going up as much as they have I cannot leave money earning such little amount... and I do not invest money that I will be using for expenses in the next few months (well, at least the last few years)...

 

[Lakedog]

I am with TD Ameritrade which has been acquired by Schwab. I also use SWVXX for cash since the TDA sweep account pays very little. I have found that if I want to trade, all I have to do is place a SWVXX sell order for the $ amount I need for trading, and this amount is immediately added to my balance available for trading. Maybe Schwab doesn't handle the same way? Has anyone with Schwab tried this?

 

[Tranquility Base]

I am with TD Ameritrade which has been acquired by Schwab. I also use SWVXX for cash since the TDA sweep account pays very little. I have found that if I want to trade, all I have to do is place a SWVXX sell order for the $ amount I need for trading, and this amount is immediately added to my balance available for trading. Maybe Schwab doesn't handle the same way? Has anyone with Schwab tried this?

I hope that is the way Schwab handles it but I don't know yet because I haven't tried to buy anything yet after my initial purchase of SWVXX. That would make more sense and at least reduce what others here have correctly called the nuisance factor. I think when I purchased SWVXX that transaction was completed instantaneously. But the Schwab broker I spoke with today left me with the impression that to sell from SWVXX and then buy something else would be a 24 hour affair.


One other possible attraction of Schwab would be the Think or Swim platform they are supposedly bringing over from TDAmeritrade sometime in 2023. I haven't seen that trading platform and I will basically be an investor and not a trader. So I don't know if Think or Swim will be everything it is cracked up to be. I opened a TD Ameritrade account a few years ago when I first wanted to try some basic trading on my own. I might have gained some experience with Think or Swim (if it was around then) but the TD Ameritrade rep had a nasty habit of calling me every 10-14 days to tell me I should fund the account or ask me when I was going to do so. So I never did fund the account and I eventually tried Vanguard.

 

[Tranquility Base]

To OP.... like you I am a bit miffed at such a low interest rate for cash in settlement account... but I did move a lot of money to Schwab and will have to live with the movement of cash...


BUT, I am looking at moving my Vanguard to Fidelity and having that be where I have cash sitting around...



With interest rates going up as much as they have I cannot leave money earning such little amount... and I do not invest money that I will be using for expenses in the next few months (well, at least the last few years)...

I am a little bit less miffed after reading the comments on this thread. I am also experimenting with/test driving a Fidelity account before I decide where I want to transfer my accounts. I don't think I will close either the Schwab account or the Fidelity account. So in the end, I might try your approach and have accounts at both brokerages. But that doesn't exactly align with my goal of simplifying things.

 

[Texas Proud]

I am a little bit less miffed after reading the comments on this thread. I am also experimenting with/test driving a Fidelity account before I decide where I want to transfer my accounts. I don't think I will close either the Schwab account or the Fidelity account. So in the end, I might try your approach and have accounts at both brokerages. But that doesn't exactly align with my goal of simplifying things.

It might be me, but I do not think that having 2 brokerage firms is going to be that complicated to handle...


Both offer free advice if you are in need of it and you can bounce one off the other if you want. I am too new to know which website is better. I do know that Fido did limit my purchase of preferred shares back when I was trading a bit of money on them.... Vanguard had no problem with me trading these shares... do not know about Schwab yet

 

[Tranquility Base]

For anyone who is still interested.....


I spoke to a representative and Schwab today and got a better understanding of how Schwab's cash management works. I was parking uninvested cash in SWVXX in lieu of donating my interest to Schwab. Previously someone told me that to buy something else, I had to sell SWVXX and wait 24 hours for the transaction to close before I purchased something else. Today I was told that that is not how it works.



The money market fund (SWVXX in my case) is traded like a mutual fund. So if I have $10,000.00 in SWVXX, I cannot just buy something else, say $5,000 of Apple stock, without first selling $5,000 of SWVXX. But once I do that, that is, sell $5,000 of SWVXX, I can then immediately use the sale proceeds of $5,000 to purchase something else. The transaction for the sale of $5,000 of SWVXX will not close until overnight, but Schwab's system will recognize that I have the $5,000 available to trade. I do NOT have to wait 24 hours.


So it is still possible to park some cash, some dry powder, in a money market fund at Schwab, have it earn some reasonable interest, but still have it be available if and when you want to pounce on an opportunity. There isn't an automatic sweep of funds into or out of a money market fund. It takes a couple more clicks. I can live with that. It was the 24 hour wait that seemed ridiculous but fortunately there isn't a need to wait 24 hours.

 

[Lakedog]

For anyone who is still interested.....


I spoke to a representative and Schwab today and got a better understanding of how Schwab's cash management works. I was parking uninvested cash in SWVXX in lieu of donating my interest to Schwab. Previously someone told me that to buy something else, I had to sell SWVXX and wait 24 hours for the transaction to close before I purchased something else. Today I was told that that is not how it works.



The money market fund (SWVXX in my case) is traded like a mutual fund. So if I have $10,000.00 in SWVXX, I cannot just buy something else, say $5,000 of Apple stock, without first selling $5,000 of SWVXX. But once I do that, that is, sell $5,000 of SWVXX, I can then immediately use the sale proceeds of $5,000 to purchase something else. The transaction for the sale of $5,000 of SWVXX will not close until overnight, but Schwab's system will recognize that I have the $5,000 available to trade. I do NOT have to wait 24 hours.


So it is still possible to park some cash, some dry powder, in a money market fund at Schwab, have it earn some reasonable interest, but still have it be available if and when you want to pounce on an opportunity. There isn't an automatic sweep of funds into or out of a money market fund. It takes a couple more clicks. I can live with that. It was the 24 hour wait that seemed ridiculous but fortunately there isn't a need to wait 24 hours.

Good to hear that it works just like I described at TDA in my earlier post. My TDA accounts will switch over to the Schwab platform in a few months.

 

[PaunchyPirate]

For anyone who is still interested.....


I spoke to a representative and Schwab today and got a better understanding of how Schwab's cash management works. I was parking uninvested cash in SWVXX in lieu of donating my interest to Schwab. Previously someone told me that to buy something else, I had to sell SWVXX and wait 24 hours for the transaction to close before I purchased something else. Today I was told that that is not how it works.



The money market fund (SWVXX in my case) is traded like a mutual fund. So if I have $10,000.00 in SWVXX, I cannot just buy something else, say $5,000 of Apple stock, without first selling $5,000 of SWVXX. But once I do that, that is, sell $5,000 of SWVXX, I can then immediately use the sale proceeds of $5,000 to purchase something else. The transaction for the sale of $5,000 of SWVXX will not close until overnight, but Schwab's system will recognize that I have the $5,000 available to trade. I do NOT have to wait 24 hours.


So it is still possible to park some cash, some dry powder, in a money market fund at Schwab, have it earn some reasonable interest, but still have it be available if and when you want to pounce on an opportunity. There isn't an automatic sweep of funds into or out of a money market fund. It takes a couple more clicks. I can live with that. It was the 24 hour wait that seemed ridiculous but fortunately there isn't a need to wait 24 hours.

So the question is, does it work the other way around?

With $0 cash in the account, can you buy 113 shares of Stock XYZ at market price which you don't know the exact price until it executes. So then you find out the total you need to do the purchase is $5,345.67. Now you sell $5345.67 worth of SWVXX to cover it.

I don't think you can do this. But maybe. It lets me do this for T-Bill auctions that are not until the next day or beyond. But not sure about Stocks/Mutual Funds/ETFs.

Edited to Add: Actually, I just did some testing and it looks like you can do this. I was able to get to the Submit an Order step for a share of Apple stock without having cash in the account to buy it. It says my "Buying Power" is $0, but then gives caveats on the ordering screen that I need to fund the order before settlement date. So this is good news. I should be able to do my BUYS and then fund them from a sale of SWVXX overnight.

 

[youbet]

So the question is, does it work the other way around?

With $0 cash in the account, can you buy 113 shares of Stock XYZ at market price which you don't know the exact price until it executes. So then you find out the total you need to do the purchase is $5,345.67. Now you sell $5345.67 worth of SWVXX to cover it.

I don't think you can do this. But maybe. It lets me do this for T-Bill auctions that are not until the next day or beyond. But not sure about Stocks/Mutual Funds/ETFs.

Edited to Add: Actually, I just did some testing and it looks like you can do this. I was able to get to the Submit an Order step for a share of Apple stock without having cash in the account to buy it. It says my "Buying Power" is $0, but then gives caveats on the ordering screen that I need to fund the order before settlement date. So this is good news. I should be able to do my BUYS and then fund them from a sale of SWVXX overnight.

There may be a difference in this procedure between a margin account and a non-margin (such as an IRA) account. With a margin account (your regular brokerage account) they know that if you fail to sell SWVXX to cover your purchase, they just create a margin loan. In your IRA, they can't do that so you show a negative cash balance until you do sell it which is not allowed or at least gets you some kind of "trading penalty."

Or something like that.......

In any case, I've maneuvered around Schwab's cash management system for years without it being too much of a pita since I don't do many trades. But I've communicated my displeasure to my rep numerous times, to no avail of course.

 

[PaunchyPirate]

There may be a difference in this procedure between a margin account and a non-margin (such as an IRA) account. With a margin account (your regular brokerage account) they know that if you fail to sell SWVXX to cover your purchase, they just create a margin loan. In your IRA, they can't do that so you show a negative cash balance which is not allowed.

Or something like that.......

All of my accounts are non-margin. I decided long ago that margin accounts weren't something that interested me.

 

[youbet]

All of my accounts are non-margin. I decided long ago that margin accounts weren't something that interested me.

I don't use margin very much, probably less than once a year. I just have the ability there in case something comes up like wanting to do some fund to fund shifting on the same day when I don't have enough in the MMF to cover.

Back to cash management....... OK, if you're able to place a trade in a cash (non-margin) account without cash to cover, then your penalty would likely be a warning followed by trade restrictions if you don't sell your MMF simultaneously to cover.

From the Schwab site:

Trade settlement violations occur when new trades are not properly covered by settled funds. Settlement violations generally occur in cash accounts, although they can also occur in margin accounts, particularly when trading non- marginable securities.

 

[pb4uski]

...Edited to Add: Actually, I just did some testing and it looks like you can do this. I was able to get to the Submit an Order step for a share of Apple stock without having cash in the account to buy it. It says my "Buying Power" is $0, but then gives caveats on the ordering screen that I need to fund the order before settlement date. So this is good news. I should be able to do my BUYS and then fund them from a sale of SWVXX overnight.

Yes, I've done this. In fact, when you complete your purchase the leftmost button is an option to cover the purchase (I've never used but have seen it).

 

[jldavid47]

But if I want to invest the funds in something else, I have to first sell part or all of the money market fund I invested the cash in, then wait 24 hours for the transaction to clear and the sale proceeds to be deposited in the uninvested cash account.

Well, that's not quite true. SWVXX settles in a day. Just about anything you'd want to buy also settles in a day. The money from the SWVXX sale will be in the account at settlement if you do both the same day.

 

[youbet]

Well, that's not quite true. SWVXX settles in a day. Just about anything you'd want to buy also settles in a day. The money from the SWVXX sale will be in the account at settlement if you do both the same day.

Doesn't SWVXX settle in a day (overnight) and other purchases settle in two days?

 

[youbet]

I put in a sample order for one share of SPY at market in my margin account where I have zero cash and got this message:

You are placing an order without sufficient free cash to cover it, which could result in a margin loan. Please consider selling shares of your Schwab Purchased Money Funds to cover this order. (AC165)

I put in a sample order for one share of SPY at market in my IRA where I also have zero cash and got this message:

Caution: This buy order was accepted without sufficient settled funds to trade in your account. If you subsequently sell this security without first delivering sufficient cash by settlement date, you may incur a trading restriction requiring settled cash up front for future purchases. (AC176)

That seems to make things clear. You can purchase in either a margin or cash account without cash as long as you sell your MMF (typically SWVVX) at the same time to cover. If you don't, you create a margin loan in your margin account or in your cash account you may be subjected to some trading restriction where going forward you do have to have cash on hand to make a purchase.

When Schwab first made these changes a few years ago, I bitched and bitched and then took the time to figure out what the rules were and have been living with them without too much aggravation. I'm not that active a trader, but refreshing myself on this was good. Thanks for bringing it up.

 

[MarieIG]

I loathe the TD Ameritrade sweep account. Yes, I can sell a money market, and then put in a trade, but I can't have limit orders on equities waiting for market drops, like I can over at Vanguard earning 4.5%. I am not thrilled with Vanguard's customer service.

I have been with TD (soon to be Schwab) a long time because of customer service, but will probably switch away from Schwab next year because of this.