Charles Schwab SCHW -2.73%decrease; red down pointing triangle reported a 34% increase in quarterly profit after trading and net interest revenue climbed.
Net income rose to $2.46 billion, or $1.33 a share, from $1.84 billion, or 94 cents, in the same period a year earlier. Earnings per share were $1.39 excluding certain one-time items. On that basis, Schwab fell just short of analysts’ average estimates of $1.40 a share, according to FactSet.
Individual investors flooded into financial markets last year, buoyed by back-to-back years of strong returns and empowered by expanded access to new assets and product types. Retail traders poured a record amount of money into stocks and exchange-traded funds in 2025, according to analysts at JPMorgan Chase, topping the levels seen during the meme stock frenzy of 2021.
The surge in activity helped make 2025 one of the best years on record for brokerages and other financial firms that cater to individuals.
Schwab’s trading revenue rose 22% to $1.07 billion in the fourth quarter. Net interest revenue, or the spread earned between what it paid out to depositors and what it collected in interest from investments and loans, climbed 25% from the year prior to $3.17 billion.
Total revenue rose 19% to $6.34 billion.
A recent earnings report shows that Schwab made more money from their bank than their brokerage business.
How does a brokerage that does not charge their customer for most brokerage services make money? They are noted for offering a wide offering of services but are skimpy with the rates they pay on uninvested cash. Fidelity has adopted a change in their policies about a year ago that made it harder to get a market return on uninvested cash. I am a customer of Fidelity and I was able to develop some work arounds that got me to where I wanted to be on money market returns. Vanguard has gone down a different path and pays market rates on uninvested cash.
I know people with more than $1M in Merrill Lynch sweep accounts. They say it pays interest, but just enough not to be sued for lying at 0.01%. Not one of these people I talked to about it changed anything. At first I was mad at ML, now I’ve decided I’m impressed. They understand human nature. No wonder they have gorgeous buildings.
I’m into Fidelity. Fantastic features and service. Reasonable sweep account rate (SPAXX currently 3.33%, exp. ratio 0.42%). I transfer excess cash to Vanguard’s default VMFXX (currently 3.63%, exp. ratio 0.11%). VMFXX is the reason I have a Vanguard account.
I cannot begin to imagine how much money the vast majority of brokerages are making on their sweep accounts. Brilliant and stupid, depending on the party under consideration.
From a self-interested viewpoint the only thing that matters is your personal fees. If others want to avail themselves of the more expensive fees of brokerage firms that is their business.
I think we want strong and profitable brokerages. At the end of the day, they’ve transformed the cost structure in ways that benefit retail investors, and I don’t begrudge them finding ways to generate solid profits within the system’s gaps.
Actually Mark I disagree. Every dollar that goes into a brokerage’s shareholders’ pocket comes out of their customers’ pockets. That’s why I have been a Vanguard investor for decades. It’s structure as a true “mutual” fund company means every dollar that would normally go to a brokerages’ shareholders is instead distributed to Vanguard’s investors increasing their returns.
As Jack Bogle was fond of saying, “you get what you don’t pay for.”