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Brokered CD at Schwab six days late paying semi annual interest payment

Anyone else have this experience? The CD is with one of the largest banks in the world. I have escalated my concern to SCHWAB including someone who represented himself to be a manager in the Fixed Income department. No response and no interest. LOL I have been told by multiple parties at Schwab that multiple too big to fail banks are not making their interest payments in a timely manner of late. Schwab seems helpless and says all they can do is contact the DTCC, who apparently does nothing. My 26 year relation with Charles Schwab will soon be ending.
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  • edited December 2023
    Anyone else have this experience?

    ========================
    Yes, I did one time, but at Fido not Schwab. It too was with a very large bank. It was in Jan 2023 and I discussed it in a thread on the Fido Investor Community board titled, "FDIC'd Brokerage CD - Late Interest Payment."

    In case you don't have access to it (Invitees Only), here are some excerpted comments from that thread. All comments are mine except the one as noted. I bolded some of the most important points from that thread.

    Summarily,
    I have owned a CD ladder for 15 years with LOTS of CDs and a late interest payment issue has only ever happened ONCE. (Pretty remarkable!)
    I spoke to very helpful FI guys at Fido a few times during the resolution of the issue and got great insights to it and help resolving it.
    I also contacted the bank directly and spoke to a high level manger there who was extremely helpful and concerned.
    The cause of the error was a system error on the bank's side after a recent merger.
    I received my accurate interest payment 10 days after the scheduled interest payment date and have not had any issues since with this CD or the numerous others we own.

    =========================
    (From that thread's OP:)
    The bank on one of our CDs did not pay interest on the scheduled payment date. In conversations with Fido reps we've been told a couple of things:

    (1) The interest payment is not yet overdue. It becomes overdue (mid-week, this week) at 10 days past the scheduled interest payment date.

    (2) The bank has made its timely interest payments on all other CDs issued by it through Fido brokerage.

    (3) Generally, if banks are untimely on their interest payments, it usually occurs at the beginning of calendar years, as is the case with this one.

    (4) If not received by the overdue date, Fido initiates a "service request" at the request of the account holder and contacts the bank to inquire about the late payment and determine if/when it will be received by Fido.

    (5) If there are unresolved issues with either the interest payment or the principal, the contract is between the account holder and the bank and any resolution of interest not received, or default on the principal payment, is between the account holder, the bank, and perhaps ultimately FDIC.

    ======================================
    Per the ever helpful and resourceful yogibearbull:

    Hopefully this situation is resolved quickly and satisfactorily.

    But Fido is only a broker/middleman here and can/will do courtesy follow ups.

    As the matter is between the CD holder and the issuing institution, it may not hurt to file a delayed-interest report to the FDIC.

    https://ask.fdic.gov/fdicinformationandsupportcenter/s/?language=en_US
    https://www.fdic.gov/contact/


    ========================================
    UPDATE per Fido:

    Fido is encountering a number of these situations with several banks at this point in time. A "service request" will be made tomorrow on the overdue date IF the interest payment has not been received by then.

    Fido assures that rarely has an account holder had to resort to individually filing a FDIC claim and does not at all expect that will happen here. The likely cause of the delayed payment is a system issue of the bank that merged with another bank in 2022.

    Interest payments can be put on hold for a month or even as long as a quarter.

    ========================================
    The Fido FI Rep I did speak to today stated what other reps have told me: A couple banks have not made their January interest payments due to either (1) system issues on the bank's end or (2) the normal, EOY/BOY delays.

    I did also speak directly to a person at the bank who confirmed that this was in fact a system issue on their end that caused the interest payment to be made 10 days after the normal interest payment date.
  • @Stillers. Thanks so much for sharing that info. It sounds like it might take more time and it’s really in the hands of the bank. I am rethinking brokered CD’s based on all this.
  • One non interest payment in 15 years. Looks to me to be a very good batting average.
  • edited December 2023
    I started a related thread on this a few minutes ago, before reading this thread. I wanted more information about "DTC" workings, as periodically Schwab and the Bank disagree on who was at fault on the delay of interest rate payments. I am having that issue currently on a Barclays CD, that pays semi-annual distributions. It was on schedule with the first distribution, was 2 days late with the second distribution, and will be over 10 calendar days late with the third distribution, as of Monday Dec 11. I have requested a formal investigation to discover the reason(s) for the delay in the distribution. Invariably the DTC comes into play. Over a year ago I had a similar problem with a different bank, and I was told that there was a regional power outage that impacted the process, but I have no way of knowing if that was accurate.
  • @dtc. I think we might have the same Barclays CD. Paid fine last dec and June. I am a long time Schwab client and they could care less.
  • I really fail to understand why Schwab, or any broker, should be held responsible for a problem from some bank. If Schwab receives the money, it forwards it to you. Are they supposed to be responsible for chasing down some issue at every bank in the US?

    If the bank has a problem that's the government's, perhaps FDIC's, responsibility. No broker is a banking regulator.
  • Does the holder of a brokered CD have standing with the bank issuing CD? Can the holder of said CD contact the DTCC? Or is the only recourse with the broker?
  • I do not own any CDs but am curious. Does the delaying bank pay additional interest at the matured CD rate for the days principal not paid?

    A more broader and fundamental question, “Is the brokerage an agent for the investor or for the issuer or not an agent for any?”
  • If one bought a corporate bond through a broker and the interest didn’t arrive would it not be the broker’s responsibility to track it down? Just curious…. Would that be different than a brokered CD?
  • I may be completely incorrect on this, but isn't it common for a specific brokered CD to be offered by more than one brokerage? If so, why or how could any one brokerage be responsible for monitoring and enforcing the conduct of a non-performing bank?

    Are the brokerages supposed to form some sort of committee to deal with a bank? How would the degree of responsibility of any one brokerage be determined?

  • Has anyone bought a Schwab CD & if so have they been late with an interest payment ?
  • @Derf- do you mean a CD actually offered by Schwab Bank, or a CD from some other bank purchased through Schwab Brokerage?

    My answer to you would be "yes" to both situations.
  • edited December 2023
    Old_Joe said:

    I really fail to understand why Schwab, or any broker, should be held responsible for a problem from some bank. If Schwab receives Msome issue at every bank in the US?

    If the bank has a problem that's the government's, perhaps FDIC's, responsibility. No broker is a banking regulator.

    I do not think Schwab can be "held responsible for a problem from some bank". But I do believe Schwab can be expected to gather information as to why a Schwab client did not receive interest from a CD, in compliance with the CD certificate. My experience is that those banks do not have personal identifying information about each of the Schwab clients holding that specific brokerage CD. In December of 2022, I had a similar problem with a different bank, that was located in North Carolina. Apparently, there were a large number of Schwab clients who were invested in the same CD, with the same CUSIP #, and Schwab was receiving a large number of compaints regarding interest payments they had not received. I decided I would try to just call the bank, got an official with the bank, who stated they had no information on file about me specifically. They did acknowledge the Brokerage CD I was associated with, did understand the terms of the CD, and did submit interest payments to the DTC, in compliance with the CD terms. The Bank was adament they had submitted the payments on time, and in compliance with the CD terms, and that it was a "Schwab Problem". Apparently, the DTC is key intermediary between Schwab and the Bank, and the DTC maintains records of transactions. I do believe both Schwab and the Bank has SEC rules they must comply with, and if either violates those rules, the CD holder can file complaints with the SEC for remedy. I was told by my Schwab representative, that the Bank issuing the CD does have some leeway to be late in paying the interest payments, so technically I could find out from Schwab that the bank has chosen to take advantage of that leeway.
  • @dt….. thanks for that info. I didn’t think I could call the Bank so calling Schwab is the only possibility.
  • edited December 2023
    Another excerpted comment from the thread I previously referenced, this one straight to the point(s) by the venerable "dickoncapecod":

    Well, you shouldn't be surprised that the financial relationship is between you and the bank that YOU deposited money at. If it is FDIC insured (or even not) institution, you'll surely receive what you are due eventually. However, the smaller the bank and higher the rate, the more likely the bank has antiquated systems and annoyances like this occur. Sometimes it's worth actually computing the dollars and cents gained by chasing "opportunities" in the risk-free rate world versus a good old (floating rate) money market funds.

    ====================
    I responded to Dick's post:

    To dick's very worthy point about "chasing 'opportunities'":

    Per Fido (bold added):

    Fidelity offers a wide range of issues, rates, and maturities to help you find the certificate of deposit (CD) that fits your needs. If a fixed income security is sold or redeemed before maturity, it may be subject to substantial gains or losses. Your ability to sell a CD on the secondary market is subject to market conditions. Fidelity doesn’t decide the creditworthiness of the issuing institution.

    Read: If the bank defaults on the interest or principal, it's the account holder's ultimate responsibility to do the FDIC filing.


    ==============================
    Dick's first comment should answer the question being kicked around here.

    If it's me in the OP's position, I would ask Schwab if they have a policy like Fido does related to issuing a brokerage "service request" at the 10-day mark if the interest still has not been received.

    I would also obtain the best phone number possible and speak directly to a person at the bank who is directly involved/has direct knowledge of the interest payment in question.

    I would NOT blow this out of proportion and would NOT start to doubt CDs.

    As Dick noted, you WILL get your principal repaid timely.

    As my scenario played out, I learned that this is a possible issue at the BOY and the EOY, every year.

    And if there is an issue, it is usually the normal, possibly slow payment cycling related to the BOY or EOY, or there is a specific reason why the interest payment was missed.

    In my case, the bank manager I spoke directly to was very helpful, NOT aware of the issue yet and thanked me for calling it to the bank's attention. She also immediately remedied the issue. She even gave me her direct phone number in the event it was not resolved.
  • edited December 2023
    Derf said:

    One non interest payment in 15 years. Looks to me to be a very good batting average.

    Especially when you consider the number of CDs I've owned over that period (50+), the number of monthly and semi-annual interest payments that represents, and the rare nature of the root cause of my issue, a merger of two banks whose systems were having real trouble communicating at EOY, a period like the BOY that many times can have issues.

    Add in that I am anal about this stuff and ALWAYS track EVERY interest payment is received. Meaning, you can take to the bank, so to speak, that this was in FACT the only interest payment issue I had in 15 years! My whole audit manager career thingie is hard to kick.

    And hey @Derf, thanks for the kind words here and elsewhere on MFO. Very much appreciated!
  • larryB said:

    @Stillers. Thanks so much for sharing that info. It sounds like it might take more time and it’s really in the hands of the bank. I am rethinking brokered CD’s based on all this.

    You're welcome and best wishes resolving your issue. See my most recent posts for additional info.
  • edited December 2023
    This morning I requested my Schwab Representative research why the semi-annual interest payment from Barclays was late. My representative engaged the Fixed Income Specialist that he works with, to do the research in more detail. Just before the market closed today, the Fixed Income Specialist called me and reported they had found a "backup documentation problem" that occurred between the DTC and Barclays, and that had to be resolved to get the interest payment submitted by Barclays. That has now been resolved and the interest payment should be submitted by the morning of December 12. So this was more of a unique process issue, and Schwab does not become aware of that until the interest payment is late and they receive inquiries from the clients who hold that CD. It pays to report these issues for investigation.
  • @dtconroe- I've been following all of this with great interest, as all of my CD and Treasury ladder is at Schwab. Thanks very much for your work on this and sharing the information.
  • I reported the Barclay Bank Cd interest payment late on Dec 6. FWIW.
  • edited December 2023
    There is lot of conduiting going on: Bank==>DTC/DTCC==>Broker==>Customer.

    But the broker is charging 25-50 bps to list CDs on its platform. Customers don't see this fee, but banks pay high prices to quickly raise funds via brokered-CD channel. Only the brokers have customers' info - banks and DTCC have no clue as to who these customers are.

    IMO, the brokers should be more helpful to the customers when something breaks in this conduiting than they appear to be from what has been reported. Broker is the loser if a customer is frustrated and walks away or swears off the brokered-CDs entirely.

    I have said elsewhere, report payment delays to the FDIC. While FDIC coverage won't kick in from delayed CD interest payments, it is valid to ask if the bank involved is in any kind of trouble. Both FDIC and the Fed watch banks who top the lists of banks offering top CD rates week after week as that is a typical pattern before the bank failures.
    https://www.fdic.gov/resources/consumers/consumer-assistance-topics/complaint-information.html
  • As Yogi just said, "report payment delays to the FDIC. While FDIC coverage won't kick in from delated CD interest payments, but it is valid to ask if the bank involved is in any kind of trouble. Both FDIC and the Fed watch banks who top the lists of banks offering top CD rates week after week as that is a typical pattern before the bank failures."

    Darned good advice.
  • Not gonna touch any of the critters mentioned here, for precisely the reasons discussed. My experience in this direction is limited to a single ADR which is underperforming. "Foreign issuer" was allegedly the reason for the delay--- not to mention that the foreign government wanted their cut. Could that gummint have been quicker to grab its own slice? Thus making the arrival of my dividend more prompt? We will never know. But I'm certainly finished dealing with it.

    So, I'm looking for an opportune moment to unload the sucker and redeploy the $$$. I deserve on-time payments of stuff promised. Granted, there are ultimately no guarantees. But dependability IS a priority for this investor.
  • My semi annual Barclays CD interest payment showed up today. There is a process, between the Bank and the DTC, that can get short circuited occasionally, with a CD interest payments. I have had a large number of CDs,with many different banks,but I have had problems with 2 banks. The most recent was some technical documentation issue, between the Bank and the DTC, that had to corrected before the Bank could issue the semi annual interest payment to the DTC, for distribution to the broker and Client. At the end of 2022, there was regional bank in North Carolina that was impacted by a Regional Power Outage, and as I understand it, the Bank had to reissue the interest payment several days late to the DTC. At any rate, that has been the feedback I received after requesting an investigation for overdue interest rate payments.
  • edited December 2023
    Crash said:

    Not gonna touch any of the critters mentioned here, for precisely the reasons discussed. My experience in this direction is limited to a single ADR which is underperforming. "Foreign issuer" was allegedly the reason for the delay--- not to mention that the foreign government wanted their cut. .

    It would drive me nuts too @Crash (a bit on the obsessive side). Of course, being a longer term investment it doesn’t hurt to wait. Might one lose a few pennies if that interest doesn’t start compounding on the date expected? I also have an ADR. Last year the ex-dividend date (when the price takes a haircut) occurred more than a month prior to the “pay date.” That’s just the way it is. You can usually dig-up the ex-dividend & pay dates for any stock / ADR on the internet without much trouble. As long as they pay on the date promised, I have no quarrel.

    PS - Come to think … those dates are also provided by your brokerage if you know where to look.
  • +1. @hank.
    Looking forward to all of my ON TIME pay-outs in December, now: both stocks and funds. Merry Christmas to all!
  • edited December 2023
    Crash: "Not gonna touch any of the critters mentioned here, for precisely the reasons discussed. My experience in this direction is limited to a single ADR which is underperforming. "Foreign issuer" was allegedly the reason for the delay--- not to mention that the foreign government wanted their cut. Could that gummint have been quicker to grab its own slice? Thus making the arrival of my dividend more prompt? We will never know. But I'm certainly finished dealing with it."

    I have no experience with ADR investing, but it sounds as if there may be different issues than with brokerage CD investing. Barclays is a London based bank, but has US branch offices, including the one in Delaware that was tied to this CD. Global investing is not uncommon with large banks, including Banks tied more to the US. I don't believe "the foreign government" (England) had anything to do with Barclays overdue CD interest payment. I never had any concerns about my initial investment in the Barclays CD, but did have concerns with the timeliness of its interest rate payments, but was confident I would get them eventually, although not as timely as with my other CDs. At any rate, I read your ADR related comments about this CD thread, and had a head-scratching reaction, wondering if ADR investing and CD investing were that similar. I have determined that Bank CDs and Brokerage CDs have more differences than I originally understood when I invested with a Barclays CD, and I will be shifting more of my Taxable Account CD assets from Schwab to some local bank CDs, as Taxable Account CDs mature.
  • Old_Joe said:

    As Yogi just said, "report payment delays to the FDIC. While FDIC coverage won't kick in from delated CD interest payments, but it is valid to ask if the bank involved is in any kind of trouble. Both FDIC and the Fed watch banks who top the lists of banks offering top CD rates week after week as that is a typical pattern before the bank failures."

    Darned good advice.

    Hmmm? That sounds a little too aggressive reaction for me. I do understand that kind of action "could" become appropriate eventually, but I personally prefer to spend a little more time with the brokerage, to see if there is some more minor issue at work, that will resolve the issue.
  • I don't understand fully this ADR tax, but it doesn't sound like an "extra" tax levied to an individual investor, to me. It sounds like it has been made for the convenience of US investors to be a normal dividend and capital gains tax, same as you would pay on domestic holdings.

    I have never paid a tax on foreign company holdings or seen paperwork that one was withheld, but that could be because all my foreign investments (mutual funds, ETFs and stocks) are in tax deferred accounts.

    Also, the write up talks about stock transactions. I don't see anything about CD income.

    from Fidelity website: https://www.fidelity.com/learning-center/investment-products/stocks/understanding-american-depositary-receipts
    American Depositary Receipts (ADRs) offer US investors a means to gain investment exposure to non-US stocks without the complexities of dealing in foreign stock markets. They represent some of the most familiar companies in global business, including household names such as Nokia, Royal Dutch Petroleum (maker of Shell gasoline), and Unilever. These and many other companies based outside the US list their shares on US exchanges through ADRs.
    Taxing and reporting
    ADR investors are not subject to non-US stock transaction taxes. And for those countries that maintain tax treaties with the US, dividends are paid without foreign withholding. However, like investment gains or income from domestic securities, proceeds from an ADR holding may be subject to US income or capital gains taxes and may be subject to backup withholding.
  • Foreign companies may withhold tax that can be refunded if a bilateral treaty exists. So, several ADRs withhold taxes.

    BTW, you will see foreign tax withheld in your yearend brokerage 1099 that can be deducted simply on Form 1040 (simple situations) or via Form 1116.
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