Schwab hot on cash
By Brooke Southall
August 14, 2006
SAN FRANCISCO - The world's biggest online stockbroker seems to have a new affinity for cash.
Investors "might consider some strategic pruning" Liz Ann Sonders, New York-based chief investment strategist with Charles Schwab Corp., said in a statement this month.
Indeed, "investors are looking at cash … as a diversifying investment, not just as a parking spot while they investigate other options," added Charles R. "Chuck" Schwab, chairman and chief executive of the San Francisco-based broker, which has more than $1 trillion in assets.
Assets in certificates of deposit purchased through Schwab's CD OneSource, the company's no-transaction-fee platform, jumped to $12.7 billion for the one-year period ended June 30, up from $6.6 billion in fiscal 2005. Money market balances, meanwhile, swelled to $125.3 billion, from $109 billion.
Schwab's nudge toward cash isn't as altruistic as it might seem.
For starters, the company earns fees on money parked in its money market funds. It also earns money on the spread between what it pays in interest on its CDs and what it earns by investing those assets.
Schwab's profit margins on stock trades have been whittled away by competition to $12.95 or lower, from $29.95, over the past couple years.
Even so, cash in recent months has improved markedly as an investment, according to Sarah Bulgatz, a Schwab spokeswoman.
"There's the magical threshold of 5% [yield] being crossed on the CD side," she said. "It's important that investors make the most of it."
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