Layers of Protection
Austin wrote a very good note a couple of weeks ago explaining how your assets are protected at Schwab, but we continue to get a lot of questions on the topic, so I wanted to reiterate his main points here.
Your Assets Are Safe
First and foremost, we believe Schwab is and will continue to be a safe company to hold client accounts, and the nature of Schwab’s business makes it vastly different than any of the banks that went under. However, in the event Charles Schwab was to become insolvent, the following protections are in place to protect your assets:
Investments are held in the investor’s name and are not subject to creditors’ claims.
This is the big one. When you put your money in a bank, the money shows up as a liability on the bank’s balance sheet and you, as the depositor, are the lender. That is not the case with your investment accounts. If Schwab were to declare bankruptcy, you would simply transfer your assets to another firm.
The Securities Investor Protection Corporation (SPIC) backs up to $500,000 per customer per account capacity for any assets unaccounted for. A small number of investment types that we do not utilize in our current strategies are not covered.
For your cash assets, the Federal Deposit Insurance Company (FDIC) insures up to $250,000 per account holder per insured bank for each ownership category. The FDIC website provides this tool for anyone who wants to calculate their personal coverage amounts.
Schwab has additional insurance underwritten by Lloyd’s of London up to an aggregate of $600 million.
Here is a link to the brochure “How client assets are protected at Schwab” for those that want to review the details of these programs more in depth.
On top of the protections laid out above, Schwab also has a “Security Guarantee” program that would cover losses in any of your Schwab accounts due to unauthorized activity, and TSA Wealth Management carries its own E&O and cyber insurance as additional layers of protection.
What if your cash balance is above the FDIC limits?
We often encourage clients with large cash balances to consider using a tool like MaxMyInterest. One, it is great for earning high yield on cash balances. Two, the system can automatically spread your cash between different banks allowing you to maintain FDIC protection on significantly larger balances. Additionally, if you want the safety but don’t need the immediate liquidity, consider deploying cash into short treasuries.
The Purpose of Financial Planning
Financial planning never assumes perfection. Over the course of your retirement, there will be numerous recessions and seemingly unimaginable financial events will happen with unnerving frequency. However, financial planning is all about preparation. By understanding and managing your risk exposures, we can remain calm as things change and minimize the big mistakes that come from reacting out of fear.
When it comes to writing about investments, the disclaimers are important. Past performance is not indicative of future returns, my opinions are not necessarily those of TSA Wealth Management and this is not intended to be personalized legal, accounting, or tax advice etc.
For additional disclaimers associated with TSA Wealth Management please visit https://tsawm.com/disclosure or find TSA Wealth Management's Form CRS at https://adviserinfo.sec.gov/firm/summary/323123