Schwab has a reputation of offering very low interest rates for cash, or forcing consumers to put in extra time and effort to mitigate. In a high inflation period this become all the more expensive to the cash holder. Since I wanted to move away from USAA to Schwab and to consolidate my checking and brokerage in the same firm, I looked into this a bit more and came up with an approach that works for my wife and me. The details follow
Overview
The overdraft (OD) provision (when enabled) in a Schwab Investor Checking Account (SICA) allows the holder to set an arbitrary limit upon which an account balance below the limit triggers a transfer from a linked brokerage account (LBA) to cover the deficit. This transfer only occurs if cash is available in the (LBA), with one exception: if the LBA is a margin account then it will be used to pay the OD amount beyond whatever cash was in the LBA. If cash becomes available in the LBA, it will be automatically applied to the margin balance. Schwab reports margin usage via email
Margin interest rate is variable, and depends on account assets. As of today it is 12% - 13%. Prime + 5% is pretty close
Advantages
(to me, anyway).
Some 90% of my cash on hand will enjoy MMF interest rates
Moving between MMF and cash will be semi-automated, immediate, and handled in one App. The mechanics lend themselves to becoming an easily learned and engrained habit that is simple to do and is not liable to significant error
Mechanics
Enable margin in a taxable brokerage account with MMF
Open Checking Account
Link Checking account to above brokerage
Enable OD
My intended Usage
Overview
The overdraft (OD) provision (when enabled) in a Schwab Investor Checking Account (SICA) allows the holder to set an arbitrary limit upon which an account balance below the limit triggers a transfer from a linked brokerage account (LBA) to cover the deficit. This transfer only occurs if cash is available in the (LBA), with one exception: if the LBA is a margin account then it will be used to pay the OD amount beyond whatever cash was in the LBA. If cash becomes available in the LBA, it will be automatically applied to the margin balance. Schwab reports margin usage via email
Margin interest rate is variable, and depends on account assets. As of today it is 12% - 13%. Prime + 5% is pretty close
Advantages
(to me, anyway).
Some 90% of my cash on hand will enjoy MMF interest rates
Moving between MMF and cash will be semi-automated, immediate, and handled in one App. The mechanics lend themselves to becoming an easily learned and engrained habit that is simple to do and is not liable to significant error
Mechanics
Enable margin in a taxable brokerage account with MMF
Open Checking Account
Link Checking account to above brokerage
Enable OD
My intended Usage
- Direct monthly income streams to LBA and put them in MMF
- Set an OD trigger in the SICA
- Pay credit cards from SICA
- Since most of our monthly cash flow is via credit card (CC), get in the habit of moving MMF amount = CC bill to cash when CC is paid.
Statistics: Posted by EricGold — Mon Apr 15, 2024 5:41 pm — Replies 0 — Views 30