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Charles Schwab is one of the biggest financial services out there. Today I want to talk about the ingenuity of Charles Schwab in this concept called Cash Sweep.

Charles Schwab is an American multinational financial services company that offers a range of brokerage, banking, and financial advisory services.

A little history lesson here:

In 1974, Charles Schwab was the first brokerage to offer a revolutionary service at its time called ‘discount brokerage’ allowing individuals to buy and sell stocks at a lower commission rate than the other brokers. This move disrupted the financial services market.

Then between the times of 1980s and 1990s it rapidly expanded its offerings from 24/7 telephone trading, online trading and eventually went public in 1987.

The real kicker happens in 2019:

Charles Schwab helped to usher in a new age of low cost investing whilst surviving market crashes, fierce competition with the introduction of zero-fee commissions. It announced it would slash its fees for stock, ETF and options trades to zero, matching the fees offered by Robinhood when it entered the market in 2014.

Following this move, other companies and brokerages matched, leading TD Ameritrade business to be damaged in which Charles Schwab acquired TD Ameritrade for $26 billion all-stock deal less two months later.

Charles Schwab highly benefited from the rise of retail investing during the covid-19 pandemic, and it enacted a genius strategy called cash sweep.

So what does this mean for you as an user?

The leftover money you have in your investment account, Charles Schwab takes that money and reinvests it in higher yield securities for example; government bonds, to help turn a profit.

Let’s bring in our thinking expert ‘ The Thinker’ to break this down:

Say you have $1000 in your automated investment account left over.

Charles Schwab takes that $1000 gives you 0.5% of that as interest giving you $5 per year.

They invest that $1000 into a higher yield account of 5% which is $50, essentially making a $45 profit.

Now imagine millions of accounts like that combined.

Charles Schwab made $2.7 billion that’s billion with a B, in the first quarter of 2023.

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