Thoughts on safety of funds at Schwab vs big and small banks?

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lmcdel's picture
lmcdel
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Thoughts on safety of funds at Schwab vs big and small banks?

I am not sure where to post this question, but in the middle of a long discussion on 9-11 was probably the wrong place (the daily digest from a few days ago)! I posted it once before in the forum, and didn't receive any replies, so I'm hoping this time someone who has thought about/looked into this will be willing to share their thoughts. I am an avid reader of this site, but lack a good head for finances. I'm a stay at home parent, and do have a good head for looking forward at what I can do to protect my family from turbulent times. I have taken various steps on the physical front (in terms of our household), but most of our savings sits at Schwab, both in money market and retirement accounts.  I understand there are many risks, starting with not being able to access one's money due to the site or phone lines being down. However, I wonder about the inherent safety vis a vis both big banks, and small community banks or credit unions. I would guess it is much safer than TBTF banks, but what about small banks or internet banks?  I would appreciate any thoughts, or pointers on where to do my own research. Thank you so much.

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sand_puppy
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I'd love to hear other money guys thoughts ...

Hi Imcdel,

I'm not a finance guy by any means, but I can report what we are doing.

Both my wife and I have 401k accounts through our current employers at a traditional brokerage (Fidelity).  Funds are in Money market accounts, and gold and silver bullion (CEF, PHYS and PLSV) and are hence NOT FDIC insured.  So a major major major crash that took down Fidelity would pose a risk to these funds even if gold and silver were sound.

We have an IRA at Wells Fargo which we recently moved to a Hard Assets Alliance IRA and purchased physical gold coins which are stored with HAA.  In the event of a massive collapse, we would request physical delivery of the coins.  So I believe that these funds would survive a collapse and a "bail in."  (I hope.)

Though we are certainly not "rich," we took most of our prior employers 401k retirement funds out the brokerage account, paid the early distribution tax and income tax, and socked it away in physical gold and silver coins.  These are in safe deposit boxes at a local credit union and a separate local bank.

And we have some cash under the metaphorical mattress.

And of course:  stored food, water, a garden, extra compost, gardening tools, etc.  a small solar panel "kit" (4  -100 Watt panels) and an inverter big enough to run the deep freezer and be recharged by solar on a sunny day.

 

pinecarr's picture
pinecarr
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Ellen Brown podcast on the banking system

Hi Imcdel-

   I am also no expert in banking.  However, I stumbled on a podcast by Ellen Brown this morning, who is very knowledgeable about banks and the risks associated with them.  In the podcast, she does mention some things to look for when assessing the safety of a bank.  Sorry, I didn't catch where it was in the podcast as I was doing something else while listening.  The podcast was on Jay Taylor Media, posted January 26, 2015 under the headline "Exit The Banking System ASAP!"  @ http://jaytaylormedia.com/audio/

   Glad you found a place to post your question where you are getting more responses!:)

 

  

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Oliveoilguy
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Sand_Puppy

Great discussion....The only thing I want to add is to emphasize diversity. Some of the smartest people we know said that Oil would never drop below 60 again.....and here we are. Gold should be much higher by all objective measures....yet here we are. If I have learned anything during this financial manipulation it is that nobody knows what will happen, including and especially financial advisors, and that we must all learn to manage our own affairs and not pay someone who has no skin in the game. Why don't financial planners assume some of the risk?

I think we need to own stuff that does not make sense because the market does not make sense. I believe in Gold but I also own FB for the sake of diversity. Like you I have CEF, but also have some JNJ.

Always liked Marc Faber's allocation: 1/4 real estate, 1/4 Gold, !/4 equities and 1/4 cash. At least you can't loose it all.

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Mark Boland
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Trust Accounts

I understand that the difference between a Stock Brokerage and a bank is that a stock brokerage account is held in trust (meaning the clients funds are not commingled with the operational financial structure of the brokerage house).  If the brokerage goes bankrupt this will not effect the clients balances.  It hink the bigger risk are the investments.  Mutual funds, ETFs,.... all have material risk of default.

MDB

Baton Rouge 

mememonkey's picture
mememonkey
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trust in a trust fund

I understand that the difference between a Stock Brokerage and a bank is that a stock brokerage account is held in trust (meaning the clients funds are not commingled with the operational financial structure of the brokerage house).  If the brokerage goes bankrupt this will not effect the clients balances.  It hink the bigger risk are the investments.  Mutual funds, ETFs,.... all have material risk of default.

MDB

Baton Rouge 

Yes, that is the basic concept re trusts as things stand now but Remember John Corizine and MF Global!

Money was 'held' in trust until it wasn't. I don't think people were ever made whole for that. He sure didn't do any jail time.

Always pays to keep in mind one of Chris' tenets here, that when they need to change the rules they will. It feels like with the shit storm that's coming, a lot of rules are going to get changed on a as needed basis.

Makes me want to stay as far away from counter party risk as possible, which is of course no easy feat if you want to diversify or are stuck for whatever reason behind a retirement.gov firewall

 

mememonkey

BuzzTatom's picture
BuzzTatom
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Posts: 72
schwab

I can only tell you about my conversation with Schwab. They don't do derivatives and as discussed above funds are not commingled. The money market I am in is ultra short term but they moved from Treasuries to other types of paper such as corporate, govt, etc...Not sure yet how I feel about that. I would call your rep and say let's play Armageddon.

hugho's picture
hugho
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schwab safety

excellent question #1. I suspect there is no way to know if  access to a schwab acct will always be guaranteed. We have our ret accts at Schwab but we have also diversified as much as possible into PM, tools, livestock, gardens, alt energy, kerosene lamps, medical supplies ,fuel storage etc. We don't own anything we can't repair. We would not live in a place dependent entirely upon supply chains and regard living in a dense urban environment  reliant upon those supply chains as high risk behavior.

Gratidude's picture
Gratidude
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Schwab sells customer orders to HFT firms

Original poster: I was "all-in" with Schwab (banking, brokerage, retirement) until I learned they sell their customer orders to high-frequency traders before the orders are executed. Some reports say they sell all their orders - some say they just sell a lot of them. I know this is common practice at brokerages but Schwab seems especially hypocritical about the subject since their management openly derides HFT while being tight-lipped about their actual practices. If you haven't already, read Flash Boys for how HFT costs you money without you knowing it.  

Starting last November I exited the market completely, which makes me looks prescient but it's really just thanks to Peak Prosperity, and transferred my accounts to the regional bank Umpqua (I live in N. CA). Now the only accounts I have left at Schwab are for banking and I intend to close those accounts soon. 

http://www.businessinsider.com/brokerages-make-millions-selling-orders-t...

 

libbyfuture's picture
libbyfuture
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Annuities?

Sorry for the repeat, but I am not sure where to post this question.

In this current climate, how safe are fixed and variable annuities with guaranteed return, double what you paid initially, within a 10 year period?  My annuities are with Voya Ohio and Nationwide.  I'm wondering if I should get out of them.

thank you.

Libby

[email protected]

dd1948's picture
dd1948
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Schwab vs big banks

About 2 years ago I learned that Vanguard uses Chase bank as a custodian for some of the funds in my portfolio.  I didn't like Chase's business model at the time but things were going fairly well with my investments so I just watched a bit more closely.  

However, two new laws/regulations recently came into effect.  First, the new bail-in law and second, the right for fund companies to freeze money market assets at their discretion.  I did a little research and think that in the event of a major financial problem (derivatives etc.) with the TBTF banks there would be a bail-in and the FDIC and SIPC would be guided by Dodd-Frank and other laws.  Under Dodd-Frank: Title II-Orderly Liquidation Authority there is a claims priority.  I tried to determine where Vanguard would be in the line and asked them.  I got a BS, happy talk reply. 

I have read somewhere that the banks derivative exposure has priority over all other claims.  In that case there would be nothing left to distribute. 

In essence you have your money in a mutual fund or stocks with no clear title(street name) and very little control over it. Add that to the fact that you may have a low priority to recover any of the money due to the failure of the custodian.  Any opinions on this viewpoint?

 

Time2help's picture
Time2help
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An opinion
dd1948 wrote:

I have read somewhere that the banks derivative exposure has priority over all other claims.  In that case there would be nothing left to distribute. 

In essence you have your money in a mutual fund or stocks with no clear title(street name) and very little control over it. Add that to the fact that you may have a low priority to recover any of the money due to the failure of the custodian.  Any opinions on this viewpoint?

Watch this if you haven't already.

Michael_Rudmin's picture
Michael_Rudmin
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Posts: 837
Any thoughts? Possibly very soon now...

One of the big things in recent "spring" revolutions has been twitter.

Therefore, if the authorities believed a revolution was possible in the near term, they might start shutting down selected voices.

Go over and look at Wendy's post:

>From: How The Seeds Of >Revolution Take Root
>
>Sat, Feb 27, 2016 - 10:03pm

Now, I would note that I see the IRS looting the poorest of the working poor as fast as it can, and the banks have set up to loot the middle and upper middle classes as fast as possible, with government help.

Now we see that the most useful tools of the populace in recent revolutions are being withdrawn.

I'd say, if you saw these changes in the weather, and didn't get out your winter coat, you'd be a fool.

dmintzer's picture
dmintzer
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Posts: 1
Schwab

I heard a financial guy say that Schwab was a very safe bank because it did not make loans and had little or no exposure to derivitives.  He said "I do not want to be around when schwab goes down."   I think that should help you.  I moved money from my local bank into schwab. 

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