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I really doubt that it's a surprise to anyone here that if a service is being offered it's highly likely that there is some type of income offset for the benefit of the offerer. "No free lunch", and all of that...
For the individual purchasing a CD through Schwab, why is it important to know how Schwab gets reimbursed for selling FDIC insured CDs for Banks? If the individual purchasing the CD is not charged any fee for the purchase, and the individual gets the posted interest rate, at the intervals listed in the CD listing, and they get the full cost of the CD returned when the CD matures, and it is protected by FDIC, what is the relevance to the individual making the CD purchase? How Schwab gets reimbursed from the banks, seems to have no impact on my CD purchase, the interest posted, and the return of my purchase price when the CD matures?
Well, if the CD issuing bank pays Schwab some amount for the service of the Schwab listing, then it's reasonable to believe that the interest amount being paid by the issuer will be very slightly less than if no service fee were involved. As a practical matter, I don't see this as a big deal. You, the buyer, are choosing the rate that you desire. It seems to me that how that rate is established is just background noise.
Well, Schwab (and Fido) are also docking us (the buyers) for the float when the money is taken from the account several days before the settlement/issue date. That is what @Derf was concerned about his CD purchase. That also concerns me for commission-free Treasury purchases at brokerages.
The other point is just the awareness that the high rates with brokered CDs are even higher for the banks offering them through the brokerage channel. Who are these banks that are willing to offer higher than market rates (gross rates to them, net rates for buyers) for their CDs? And why? Some of these banks end up being rescued by the FDIC - it is known that the FDIC is watching banks that are among the top brokered CD lists too often. The wise ones tend to rotate in and out of the top rate lists. While a FDIC insured brokered CD from a lesser known bank has no risk at maturity, one may not get good bids if one has to sell early.
Here is a Bankrate.com article about pros and cons of brokered CDs and bank CDs. BTW, Bankrate also notes that not all brokered CDs are covered by the FDIC, as I noted too - I am not just writing here for Schwab. https://www.bankrate.com/banking/cds/what-are-brokered-cds/
Well, Schwab (and Fido) are also docking us (the buyers) for the float when the money is taken from the account several days before the settlement/issue date. That is what @Derf was concerned about his CD purchase.
True enough. But if the money being used to purchase the CD is being drawn from a typical bank checking or savings account, or from a MMkt cash fund, it's not getting any interest anyway. Seems to me that we're quibbling about pennies here.
Yogi: "Well, Schwab (and Fido) are also docking us (the buyers) for the float when the money is taken from the account several days before the settlement/issue date. That is what @Derf was concerned about his CD purchase. That also concerns me for commission-free Treasury purchases at brokerages."
I have not been able to identify how Schwab has "docked" me for the "float". All I can see are accurate Transaction Documents, reflecting the amount of CD I purchased, the account that was debited to make the purchase, and I have a CD Disclosure document that reflects that I will receive my CD purchase amount credited back into my account on the CD Maturity date. My documents states that contractually I will receive the CD interest rate quoted in the purchase, on intervals stated in the purchase. There is nothing in the transaction documents about a financial impact ("docking") that I will experience related to some period you reference as a "float". Do you have any specifics where that "docking" would be reflected?
Thank you for the update @dtconroe. I also buy from Schwab and what you state has been my understanding over the years. Schwab clearly states that all banks on their new issue list are covered by FDIC. Because all the banks listed are FDIC insured, how big or small the bank is or where it is located hasn't been a concern to me. I hope that is not a naïve view.
Mike, In your experience buying CDs at Schwab, have you been "docked" in any way for the "float" that Yogi is referencing?
We seem to be talking at cross-purposes to a degree. For example: Just today I bought a "brokered" CD through Schwab. The market is closed today, but the transaction will occur tomorrow, and my cash account at Schwab will be debited tomorrow. However, the actual "purchase date" for the CD is clearly noted as of June 28, which is in fact eight days between the debit to my cash account and the credit to my CD account. That eight day interval is the "float" that is being discussed.
I am waiting to hear something specific, from someone who has purchased a brokerage CD at Schwab, about a "docking" of their account, for the "float" interval. I have not seen that in my Schwab brokerage account, but maybe someone else has.
Call it docking,,,, call it a float. Call it what you will. The fact is that the money that will be used to fund your CD purchase leaves your account and until the settlement date earns no interest for you. I assume that my money is making interest for Mr. Chuck. It is not making money for me.
I've purchased Brokered CD's from BMO Harris,Discover Bank,Goldman Sachs,JPMorgan Chase and Capital One recently at Fidelity-all of which include FDIC insurance. If all these banks fail, then the world is in a financial armageddon where the most valuable assets are guns, bullets, prepper food and toilet paper !
We seem to be talking at cross-purposes to a degree. For example: Just today I bought a "brokered" CD through Schwab. The market is closed today, but the transaction will occur tomorrow, and my cash account at Schwab will be debited tomorrow. However, the actual "purchase date" for the CD is clearly noted as of June 28, which is in fact eight days between the debit to my cash account and the credit to my CD account. That eight day interval is the "float" that is being discussed.
BTW, I concur exactly with the comments of MikeM.
Yes, I read your post. I know what the float period refers to. I am waiting to hear if anyone actually experiences a financial cost, associated with that float period. I have not.
@dt. Obviously my loss of interest for a week might not be much. But the interest picked up by Schwab from the collective weeks of hundreds if not thousands of investors might be something. It does not stop me from buying lots of CD’s and I am glad for the opportunity to buy them in one place. But somebody is making money on the float.
@dt. Obviously my loss of interest for a week might not be much. But the interest picked up by Schwab from the collective weeks of hundreds if not thousands of investors might be something. It does not stop me from buying lots of CD’s and I am glad for the opportunity to buy them in one place. But somebody is making money on the float.
Thanks for the information--loss of interest from my cash account, waiting for the first settlement/issue date for the CD, is not important to me.
@hank are they, Fido, privately own ? Well if that's the case try Schwab or Bl. Rock. Now I'm wondering how many brokerages are available via stock purchase ?
Mike, In your experience buying CDs at Schwab, have you been "docked" in any way for the "float" that Yogi is referencing?
@dtconroe, no, I don't believe I've ever been "docked" anything for purchasing CD's through Schwab. I understand the talk about the hold time between purchase and settlement, but I'm finding a lot of this worrisome discussion humorous. I should be worried that Schwab is making a few pennies on my money during settlement when my accounts drop $7000-$10,000 in a day during this down turn? Come on, Schwab is a publicly owned business. They exist to make money!
@Derf, current Barron's (see Part 2 elsewhere) is favorable on several publicly listed asset managers. JHG and SCHW didn't make the list; SCHW is more a combo broker-dealer-asset-manager. Fido and Vanguard are private.
BULLISH. Asset manager stocks (AB (65% owned by EQH), BLK, BEN, IVZ, TROW; sharp selloff; attractive yields and valuations; pg 15).
Mike, In your experience buying CDs at Schwab, have you been "docked" in any way for the "float" that Yogi is referencing?
@dtconroe, no, I don't believe I've ever been "docked" anything for purchasing CD's through Schwab. I understand the talk about the hold time between purchase and settlement, but I'm finding a lot of this worrisome discussion humorous. I should be worried that Schwab is making a few pennies on my money during settlement when my accounts drop $7000-$10,000 in a day during this down turn? Come on, Schwab is a publicly owned business. They exist to make money!
Mike, those are my sentiments as well. Transitioning from a "liquid" cash holding, to an illiquid CD holding, involves some inefficiency, but that inefficiency is pretty insignificant in my personal situation. As far as Schwab making some money, through this inefficiency, is not a concern of mine.
Brokers' use of float is real and it is big money for them in the aggregate. I have pointed out that some apparently "free" broker services (CD and Treasury purchases) are not really "free". Whether one chooses to ignore it is another matter. BTW, Schwab was just fined millions for not properly disclosing that its robo-advisor/SIP were not really "free".
As a practical matter, I track payments due date for all vehicles - stocks, ETFs, CEFs, options, CDs, Treasuries. The important point is that for most (stocks, ETFs, CEFs, options), the payments are due by the settlement dates, but not so for CDs and Treasuries - so for those, have the money ready/available on (or soon after) the order date. I have margin accounts at both Fido and Schwab and when there are mismatches in the cash flows, I have been docked margin interest; if one has only cash/non-margin account, the trades/orders may be cancelled or trade violation warnings may be issued.
@hank are they, Fido, privately own ? Well if that's the case try Schwab or Bl. Rock. Now I'm wondering how many brokerages are available via stock purchase ?
As far as I know, Fido is privately owned. There’s another thread running on prospects for the asset managers, including T. Rowe and BlackRock. and with LizAnn @ Schwab I’d expect @Crash already owns a piece.
LOL / DKNG is alive & well. After exiting and eating a small loss few weeks ago, got back in at under $12 last week. Slightly ahead now. Just play money. If it would start going up, I’d hang on a long while. Kinda like betting on horses. The really “dark” ones usually pay more. In a sense, it’s government supported gambling (being inside a Roth IRA). Unlike regular gambling, winnings are tax free.
Asset Managers, yes. In PRISX, among their top 50: State Street, Schwab, Ray James, PNC, Voya, and probably some others which i do not recognize. (And now, back to the thread:)
Comments
The other point is just the awareness that the high rates with brokered CDs are even higher for the banks offering them through the brokerage channel. Who are these banks that are willing to offer higher than market rates (gross rates to them, net rates for buyers) for their CDs? And why? Some of these banks end up being rescued by the FDIC - it is known that the FDIC is watching banks that are among the top brokered CD lists too often. The wise ones tend to rotate in and out of the top rate lists. While a FDIC insured brokered CD from a lesser known bank has no risk at maturity, one may not get good bids if one has to sell early.
Here is a Bankrate.com article about pros and cons of brokered CDs and bank CDs. BTW, Bankrate also notes that not all brokered CDs are covered by the FDIC, as I noted too - I am not just writing here for Schwab.
https://www.bankrate.com/banking/cds/what-are-brokered-cds/
I have not been able to identify how Schwab has "docked" me for the "float". All I can see are accurate Transaction Documents, reflecting the amount of CD I purchased, the account that was debited to make the purchase, and I have a CD Disclosure document that reflects that I will receive my CD purchase amount credited back into my account on the CD Maturity date. My documents states that contractually I will receive the CD interest rate quoted in the purchase, on intervals stated in the purchase. There is nothing in the transaction documents about a financial impact ("docking") that I will experience related to some period you reference as a "float". Do you have any specifics where that "docking" would be reflected?
BTW, I concur exactly with the comments of MikeM.
BULLISH. Asset manager stocks (AB (65% owned by EQH), BLK, BEN, IVZ, TROW; sharp selloff; attractive yields and valuations; pg 15).
As a practical matter, I track payments due date for all vehicles - stocks, ETFs, CEFs, options, CDs, Treasuries. The important point is that for most (stocks, ETFs, CEFs, options), the payments are due by the settlement dates, but not so for CDs and Treasuries - so for those, have the money ready/available on (or soon after) the order date. I have margin accounts at both Fido and Schwab and when there are mismatches in the cash flows, I have been docked margin interest; if one has only cash/non-margin account, the trades/orders may be cancelled or trade violation warnings may be issued.
I have no further/new info to add on this.
How is DK doing ?
Look at the bright side. Don’t own crypto.
Happy investing @Derf
Asset Managers, yes. In PRISX, among their top 50:
State Street, Schwab, Ray James, PNC, Voya, and probably some others which i do not recognize.
(And now, back to the thread:)