Charles Schwab is a brokerage and banking company that holds and invests your money

Charles Schwab is a financial services company that lets you buy and sell stocks, bonds, mutual funds, and exchange-traded funds (ETFs). It also offers banking services — checking accounts, savings accounts, and debit cards — and retirement accounts like IRAs. Schwab makes money when you trade securities, when you keep money in their accounts, and when you use their banking services. You do not need to be wealthy to open an account; Schwab serves individual investors with small balances and large ones.

The company operates both as a brokerage (the place where you execute trades) and as a custodian (the entity that holds your securities and cash). This means Schwab both executes your buy and sell orders and keeps your investments safe in your account. You access your account through their website, mobile app, or by calling their customer service line.

Schwab also owns TD Ameritrade, which it acquired in 2020 and is in the process of consolidating. If you have a TD Ameritrade account, you may eventually be moved to the Schwab platform, though the company has extended timelines for this transition multiple times.

Key Takeaways

  • Charles Schwab lets you buy and sell stocks, bonds, mutual funds, and ETFs through a brokerage account you can open online.
  • Schwab also offers banking products including checking accounts, savings accounts, and debit cards, all linked to the same login.
  • You can open retirement accounts like traditional IRAs, Roth IRAs, and SEP IRAs through Schwab, with the same investment options available.
  • Schwab charges no commission on stock and ETF trades, but does charge fees for certain services like wire transfers and some mutual fund transactions.
  • Your cash and securities held at Schwab are protected by SIPC insurance up to $500,000 per account type, plus additional FDIC insurance on cash balances.

How Schwab's brokerage account works

When you open a brokerage account at Schwab, you deposit money and then use that cash to buy securities. You can buy individual stocks by typing the company's ticker symbol (like AAPL for Apple) and entering the number of shares you want. You can also buy mutual funds and ETFs, which are baskets of many stocks or bonds bundled together. Schwab executes the trade — meaning it finds a seller and completes the transaction — usually within seconds during market hours.

Schwab charges no commission on stock trades or ETF trades. This was not always the case; until 2019, most brokerages charged $5 to $10 per trade. Schwab eliminated commissions to compete with newer, app-based brokerages. You may still pay fees for certain mutual funds, depending on which fund you buy and whether Schwab has a relationship with that fund company. Schwab publishes a list of commission-free mutual funds on its website.

You can also sell securities you own. When you sell, Schwab converts your shares back into cash, which sits in your account until you withdraw it or buy something else. If you sell a security for more than you paid for it, you owe capital gains tax on the profit. Schwab sends you a tax form (Form 1099-B) at the end of the year listing all your sales.

Banking services Schwab offers

Schwab's banking arm lets you open a checking account and a savings account. The checking account comes with a debit card and check-writing privileges. The savings account earns interest, though the rate changes based on Federal Reserve decisions and Schwab's own policies. Both accounts are linked to your brokerage account under one login, so you can move money between them when ready.

Schwab also offers money market accounts, which are savings accounts that may pay slightly higher interest but restrict how often you can withdraw. These accounts are FDIC-insured, meaning if Schwab fails, the federal government guarantees your deposits up to $250,000 per account type. This is separate from the SIPC insurance that covers your brokerage securities.

If you need to send money outside Schwab — to pay a bill or transfer to another bank — you can do so through wire transfer, ACH transfer, or check. Wire transfers usually cost $25 per outgoing transfer. ACH transfers (which take one to three business days) are usually free. You can also write checks directly from your Schwab checking account.

Retirement accounts at Schwab

Schwab lets you open retirement accounts including traditional IRAs, Roth IRAs, SEP IRAs (for self-employed people), and straightforward IRAs (for small business owners). These accounts have the same investment options as a regular brokerage account — you can buy stocks, ETFs, mutual funds, and bonds — but they have tax advantages. Money you contribute to a traditional IRA may be tax-deductible in the year you contribute it. Money you withdraw from a Roth IRA in retirement is not taxed.

Retirement accounts have annual contribution limits set by the IRS. For 2024, you can contribute up to $7,000 to an IRA if you are under 50, or $8,000 if you are 50 or older. Schwab does not set these limits; the IRS does. Schwab's role is to hold the account, execute your trades, and send you tax forms at the end of the year.

You can also roll over a retirement account from another institution into Schwab. This means transferring the balance from an old 401(k) or IRA to a Schwab IRA without triggering taxes or penalties, as long as you follow IRS rules. Schwab has a rollover team that can walk you through the process.

Fees and costs you should know about

Schwab charges no commission on stock and ETF trades. However, other fees explore depending on what you do. Wire transfers out of your account cost $25 each. Some mutual funds carry a transaction fee if you buy them through Schwab, though Schwab publishes a list of thousands of commission-free mutual funds. Certain account types, like IRAs, have no monthly maintenance fee, but some advisory accounts charge a percentage of your assets under management.

If you maintain a low balance or do not trade, Schwab does not charge you to keep the account open. There is no minimum balance requirement for most account types, though some advisory services have minimums of $25,000 or more. Schwab also does not charge you to hold cash in your account, though the interest rate on that cash changes.

When you buy a mutual fund or ETF, you may also pay an expense ratio — a yearly fee charged by the fund itself, not by Schwab. This fee is deducted from the fund's value automatically and is expressed as a percentage. A fund with a 0.05% expense ratio costs $5 per year for every $10,000 you invest. Schwab publishes the expense ratios of all funds on its website so you can compare before you buy.

How Schwab protects your money

Schwab is a member of the Securities Investor Protection Corporation (SIPC), a nonprofit that insures brokerage accounts. SIPC covers up to $500,000 per account type if Schwab fails or goes bankrupt. This means if you have $300,000 in stocks in a brokerage account and Schwab collapses, SIPC returns your $300,000. The coverage applies separately to different account types — your brokerage account, your IRA, and your joint account are each covered up to $500,000.

Cash held in Schwab's bank accounts is also covered by FDIC insurance, which protects up to $250,000 per account type at each bank. Schwab uses multiple banks to hold customer cash, which means your cash deposits may be covered by more than $250,000 in FDIC insurance if Schwab spreads the deposits across banks. Schwab publishes details about its FDIC coverage on its website.

SIPC and FDIC insurance do not cover losses from bad investment decisions or market downturns. If you buy a stock for $100 and it falls to $50, SIPC does not reimburse you the $50 loss. Insurance only protects you if the brokerage or bank itself fails.

How Schwab makes money

Schwab no longer makes money from commissions on stock trades, since it eliminated those fees in 2019. Instead, Schwab makes money in several ways. It earns interest on cash balances held in customer accounts — when you keep money sitting in your Schwab account, Schwab lends that money out and keeps the interest spread. It also charges fees for certain services like wire transfers, advisory accounts, and some mutual fund transactions. Schwab also makes money from margin interest if you borrow money to buy securities.

Additionally, Schwab earns revenue from its banking operations. When you keep money in a Schwab savings account, Schwab pays you interest but keeps a portion of the interest spread for itself. Schwab also sells financial products like insurance and annuities, which generate commissions.

Frequently Asked Questions

Do I need a lot of money to open a Schwab account?

No. Most Schwab account types have no minimum balance requirement. You can open a brokerage account, checking account, or IRA with any amount of money, even $1. Some advisory accounts that charge a percentage fee have minimums of $25,000 or more, but standard accounts do not.

Can I buy individual stocks at Schwab?

Yes. You can buy shares of any publicly traded company. Schwab charges no commission on stock trades. You type the company's ticker symbol, enter the number of shares you want, and Schwab executes the trade. You can also set up automatic purchases if you want to buy the same stock on a regular schedule.

What happens to my money if Schwab goes out of business?

Your securities are covered by SIPC insurance up to $500,000 per account type. Your cash is covered by FDIC insurance up to $250,000 per account type, though Schwab uses multiple banks so your coverage may be higher. In either case, you would receive your money back from the insurance fund, not from Schwab itself.

Can I move my money out of Schwab anytime?

Yes. You can withdraw cash from your checking or savings account anytime through ACH transfer, wire transfer, or check. You can also sell securities and withdraw the proceeds. Retirement accounts have withdrawal restrictions — you generally cannot withdraw before age 59½ without paying taxes and penalties — but these are IRS rules, not Schwab rules.

Does Schwab offer financial information?

Schwab offers both self-directed investing (where you make all decisions) and advisory services where a financial advisor helps you. Advisory services charge a fee based on the amount of money you have invested, typically 0.25% to 0.50% per year. You can also use Schwab's educational resources and tools for free without paying for information.