Is Your Money With TD Ameritrade and Charles Schwab Safe?, #145
The Silicon Valley Bank collapse has many listeners worried about the health of other banks like Charles Schwab and TD Ameritrade. On this episode, I want to address the safety concerns you and others may have about your investment accounts with TD Ameritrade and Charles Schwab.
You will want to hear this episode if you are interested in...
Comparing Silicon Valley Bank and Charles Schwab [1:27]
Identifying the safeguards that protect your money [4:53]
Exploring past worst-case scenarios and final thoughts [7:34]
Brokerage firms versus traditional banks
In the wake of the Silicon Valley Bank and Signature Bank collapses Charles Schwab Brokerage Company has been in the news because there is speculation they made similar long-term high-quality bonds investments that could lead to another bank failure. Banks need to raise more capital anytime bonds decrease in value. Silicon Valley Bank attempted to raise capital by issuing more stock, hoping to right the ship. But this move spooked savers and investors, which created a run on the bank and its subsequent collapse.
Charles Schwab is a different bank because they are a brokerage firm first. And as a brokerage firm, 95% of their assets are on the brokerage side. That's very important because it means they are not held on the bank side. Brokerage firms are required to segregate their investors' brokerage accounts from their own accounts. So in the event of a Charles Schwab collapse, your money on the investment side would not be at risk because those accounts are segmented.
How Charles Schwab keeps your money safe
One of the biggest reasons SVB failed was that 90% of its deposits exceeded the FDIC limit of $250,000. Schwab’s CEO recently stated that only 20% of their deposits exceed the FDIC limit, which further demonstrates their commitment to keeping their client’s money safe. Furthermore, there is a minimum capital requirement brokerage firms must have to ensure they have enough liquidity in the event of a crisis.
There are also additional protections for your money through SIPC insurance. That stands for the Securities Investor Protection Corporation, which every brokerage firm has to be a member of. The insurance guarantees $500,000 of coverage per customer for securities assets in a brokerage account and up to $250,000 for any uninvested cash. In the event a brokerage firm didn't abide by their requirements to keep their customer accounts segregated, SIPC insurance would kick in to protect you from fraud. Most brokerage firms carry additional coverage above and beyond SIPC insurance as well. Charles Schwab has been noted to offer coverage for up to $1.15 million in cash per customer. Listen to this episode for more on Charles Schwab and TD Ameritrade!
Resources Mentioned
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