Your assets are protected at Schwab.
We work hard to make Schwab a secure and safe place for your money. Whether you hold securities like stocks, bonds, mutual funds, exchange traded funds, or money market funds in a Schwab brokerage account, or cash deposits in a Schwab Bank account, we have your assets protected. Here are answers to the most common questions about all the ways Schwab works to keep your money safe.
How Schwab protects client assets
How Schwab protects client assets
RICK WURSTER: Hi, I’m Rick Wurster, President of Charles Schwab. In my role, I talk to clients every day, and what I know from those conversations is that trust and transparency are paramount. One way to build that trust is to ensure clients know how their assets are protected here at Schwab, not just today, but every day. In that spirit, I’ve invited two experts at Schwab to have a conversation about asset protection. I’ve invited Demetra Sullivan, a leader with deep client experience across all wealth levels, and Nigel Murtaugh, our Chief Risk Officer. Demetra, take us away. What questions are most common from our clients about asset protection.
DEMETRA SULLIVAN: Thank you, Rick, and thank you, Nigel, for joining me today. It’s great to have our chief risk officer here to have this conversation.
So in my role, I lead people who talk to clients every day, clients of all different ages, asset levels, investment styles, and one of the most common questions that comes up, especially in uncertain times, but even in more stable times, is how their assets are protected at Schwab. And so that’s what we’re going to talk about today.
So I’d like to start at one of the more foundational spaces, and that is that Schwab is both a bank and a broker-dealer. Can you explain at a high level for our clients what the difference is?
NIGEL MURTAUGH: Sure, Demetra. Thanks for having me. At Schwab, it all starts with the brokerage business. That’s been our core business for over 50 years. That’s where we assist clients with their investments, their wealth management, and we custody their securities. More recently, we started Schwab Bank, managed very conservatively, to provide clients with access to checking accounts, debit accounts, and other ways that they can move their money. We also make a small number of loans out of Schwab bank.
DEMETRA: Okay, that helps a lot. So since clients primarily come to Schwab to invest, and roughly 90% of the 7 trillion or so assets we have at Schwab is at the broker-dealer, let’s start there. How are client’s investments, so their mutual funds, ETFs, stocks, bonds, other securities, how are those protected at Schwab?
NIGEL: Sure. The first thing for clients to remember is that their securities at Schwab are theirs. Their investments remain theirs. The SEC Security Protection Rule safeguards client assets at brokerage firms by preventing those firms from using customer assets to finance their proprietary business. At Schwab, client’s fully paid securities are segregated from the firm securities and they’re held at a third party depository institution, such as the Depository Trust Company and Bank of New York. There are reporting and auditing requirements to assure that brokerages comply with this rule to segregate client assets. In the very unlikely event that Schwab should become insolvent, those segregated assets are not available to general creditors. They’re protected from any other creditor claims. They remain the client’s assets.
DEMETRA: Okay, that’s really reassuring. So clients have probably heard about S-I-P-C, or SIPC insurance. Can you explain what that is, and why is it even needed if the client’s assets are theirs?
NIGEL: Sure. S-I-P-C, or SIPC, stands for the Securities Protection Corporation. And what it provides is protection for securities and cash in brokerage accounts, including those held by clients of our investment advisors at Schwab Advisor Services. And the SIPC protections are activated in the rare event that a broker-dealer fails and client assets are missing. In that situation, SIPC provides up to $500,000 worth of protection against any of those missing assets, including $250,000 in cash against uninvested cash balances.
DEMETRA: Okay. So it’s great to know that that insurance coverage is there, but 500,000 doesn’t seem like that much. Can you talk a little bit more about that?
NIGEL: Sure. The key point to remember here is that these assets are the client’s. They’re not commingled with Schwab’s assets on the broker-dealer. So they’re segregated for the benefit of clients. The insurance is just there in the unlikely event that there were some assets missing and the broker-dealer fails. In that situation, the account will receive a pro-rata share of all of the assets in the broker-dealer that have been segregated, and the $500,000 worth of SIPC insurance is there to cover any assets that might be missing.
DEMETRA: Okay. So I know clients are going to ask this question. How well has SIPC, or S-I-P-C, protected investors in the past?
NIGEL: Very well. So what SIPC reports to us is the vast majority of broker-dealer failures, even when they do occur, no assets are missing. So the fact that the assets are segregated for the benefit of clients, the clients get those assets back. Since SIPC’s inception 50 years ago, when there has been a liquidation in assets missing, clients have received 99% of their securities back from the failed broker-dealer.
DEMETRA: That’s helpful. Thanks, Nigel. Let’s transition to the bank and specifically client cash held at Schwab Bank, because even though it is much smaller than our broker-dealer, our clients like to use us as a bank and use checking or savings, or even use us for their transactional needs in their brokerage account. So can you speak to the protection in place for client cash at Schwab Bank?
NIGEL: Sure. The first thing to remember at Schwab Bank and for deposits is about FDIC insurance. That’s the Federal Deposit Insurance Corporation. It’s an independent agency backed by the US government, and its purpose is to provide protection against client deposits at a bank. The standard FDIC insurance provides up to $250,000 per depositor per insured bank based on an ownership category. So you could get insurance for an individual account and additional insurance for a joint account. The same applies to trust accounts. All of the deposits at Schwab Bank are protected by FDIC insurance. That includes all of our investor checking accounts and savings accounts and CDs.
DEMETRA: Okay, that makes sense. What about balances over 250,000? How can clients feel reassured about those?
NIGEL: This is one of the reasons it’s great to bank with Schwab Bank. You want to maintain your deposits at a bank that is conservatively managed and has sufficient liquidity to meet any client request for their deposits back. That’s the way Schwab has always managed this bank so that we have sufficient liquidity on hand in the event any of those clients wanted to have those deposits back.
DEMETRA: Thank you, Nigel. This was very helpful.
So to summarize, it sounds like as it relates to the broker-dealer assets, clients should know that investments at Schwab are segregated at the broker-dealer. Those are separate and not comingled with assets at Schwab Bank. These segregated securities are protected against creditors’ claims. And as it relates to client cash at Schwab Bank, clients have FDIC insurance up to the limit and beyond that, Schwab has very safe and a liquid balance sheet. Thank you again, Nigel, for joining us today.
NIGEL: Thank you, Demetra.
How Schwab protects client assets
Schwab's Chief Risk Officer Nigel Murtagh and Regional Market Executive Demetra Sullivan discuss how client assets are protected at Schwab and answer some common client questions on the topic of asset protection.
The first thing to remember is your securities—like stocks, bonds, mutual funds, exchange traded funds, or money market funds—held at Schwab are yours. The SEC's Customer Protection Rule safeguards customer assets at brokerage firms by preventing firms from using customer assets to finance their own proprietary businesses.
At Schwab, clients' fully paid securities are segregated from other firm assets and held at third party depository institutions and custodians such as the Depository Trust Company and Bank of New York. There are reporting and auditing requirements in place by government regulators to help ensure all broker-dealers comply with this rule. In the very unlikely event that Schwab should become insolvent, these segregated securities are not available to general creditors and are protected against creditors' claims.
If you have a margin account with a current loan balance, Schwab may borrow a portion of the securities pursuant to the loan consent provision of your account agreement. If there is not a current margin loan balance, or it is not a margin account, securities will not be borrowed out of your account. Per regulation, any securities that are borrowed are fully collateralized with cash that is held in reserve for clients.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency that maintains the Deposit Insurance Fund which is backed by the full faith and credit of the United States government. Its purpose is to protect depositors' funds placed in banks and savings associations.
The FDIC insures accounts held at member banks up to $250,000 per depositor, per insured bank, based on ownership category. However, all deposits held at the same FDIC-insured bank in the same ownership capacity are added together to determine your total amount of FDIC insurance coverage at that bank. This rule applies whether you open an account directly at the bank (such as a Schwab Bank Investor Checking™ or Schwab Bank Investor Savings account™), or whether Schwab brokerage holds the accounts on your behalf (such as through Schwab's Bank Sweep feature). Bank Sweep deposits may be swept into more than one Program Bank to extend the total FDIC coverage available to you.
You can find more detailed information on the amount you have in each bank by account on the Balances page or by going to schwab.com/login > Accounts > Balances. It is also available on your statement.
CDs in Schwab's CD marketplace, Schwab CD OneSource®, are also protected by the FDIC. CDs you purchase through Schwab are aggregated with other deposits you hold at each issuing institution and are FDIC-insured up to $250,000 per bank.
To learn more, visit our FDIC insurance page.
Schwab is a member of Securities Investor Protection Corporation (SIPC), which provides protection for securities and cash in client brokerage accounts, including those held by clients of investment advisors with Schwab Advisor Services. SIPC protections are activated in the rare event that the broker-dealer fails (bankruptcy) and client assets are missing due to fraud or other causes.
According to SIPC, most broker-dealer failures happen with no securities missing. Since their inception over 50 years ago, 99% of eligible investors got their investments back in the failed brokerage firms cases that it has handled. The SIPC liquidation process generally assures that customers of a failed broker-dealer receive their securities and cash with reasonable promptness after filing a claim.
SIPC protects against the loss of cash and securities—such as stocks and bonds—held by a customer at a SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. There is no requirement that a customer reside in or be a citizen of the United States. A non-U.S. citizen with a Schwab account is treated the same as a resident or citizen of the United States with a Schwab account.
SIPC coverage is used to reimburse customers if there is a shortage after all customer assets held at the brokerage firm have been recovered. SIPC provides up to $500,000 of protection for brokerage accounts held in each separate capacity (e.g., joint tenant or sole owner), with a limit of $250,000 for claims of uninvested cash balances. These limits do not mean that the account will only receive up to $500,000 of their invested securities. Rather, in a SIPC customer proceeding, the account will receive a pro-rata share of all client assets recovered in liquidation then will receive up to $500,000 from SIPC to make up any difference that exists. SIPC does not protect against the decline in value of customer securities.
Yes, in addition to SIPC, Schwab clients receive an extra level of coverage through "excess SIPC" insurance protection for securities and cash. This helps ensure claims will be covered in the event of a brokerage firm failure and funds covered by SIPC protections are exhausted. Schwab's Excess SIPC program has a $600 million aggregate (meaning the most the program will pay for the Excess SIPC portion of the losses). Commodity interests, futures contracts and cash in futures accounts are not protected by SIPC.