Schwab charged margin interest on ETF->MF exchange

[ny10036]

Hi. This is the first time I've done this and also the first time I've been charged margin interest and what I've found on the web are inconclusive, so I'm asking here.

In my Schwab account, I recently sold VXUS and purchased SWHYX with the majority of the proceeds. It's also important to note that I did this on the same day before funds had settled. It might also be worth noting that my account is a margin account, not because I asked for it, but because it was the default option offered a few years ago, and I accepted assuming that I'm never going to use margin.

I made this ETF->MF exchange because I had done similar at Vanguard/Fidelity many times where I use the "exchange" feature to swap mutual funds on occasion.

Now that I've been hit with an interest charge, and now that I've given it some thought, MF->MF exchanges are clearly different from ETF->MF exchanges. Or is it? This post viewtopic.php?t=268309 makes it sound like you can do this without issue at VG.

So my question is: is Schwab the exception when it comes to charging margin interest with ETF->MF exchanges? Because it seems VG allows you to do this without any financial penalties.

[alex_686]

Stocks and bonds settle on Trade + 2 days.

Mutual funds settle on Trade + 1 day.

Thus for 1 day you had to borrow money because you didn’t have settled funds from your ETF sale.

You would not see this on any other exchange configuration.

[tj-longterm]

Yes, as Alex explained, this would be expected. It’s a frustrating quirk, IMO, of the way settlement works because it means it’s almost impossible to truly exchange from ETFs to mutual funds — you either have to pay interest or you may not get the same price.

[student]

Thank you for this thread, I did not know about this issue of different settlement times of ETF and MF resulting in this outcome (or at least I didn't remember it).

[Inframan4712]

Same thing happened to me after Ameritrade became Schwab.

I made the same kind of trade that I’ve always made. When I saw the charge I called them and they said “shouldn’t have happened since this a tax deferred account and we don’t allow margin on that type of account.”

They removed the margin I never wanted. And the fee.

[rkhusky]

Same thing happened to me after Ameritrade became Schwab.

I made the same kind of trade that I’ve always made. When I saw the charge I called them and they said “shouldn’t have happened since this a tax deferred account and we don’t allow margin on that type of account.”

They removed the margin I never wanted. And the fee.

So, are you allowed to sell an ETF and buy a MF same day in this account without margin?

[Inframan4712]

Same thing happened to me after Ameritrade became Schwab.

I made the same kind of trade that I’ve always made. When I saw the charge I called them and they said “shouldn’t have happened since this a tax deferred account and we don’t allow margin on that type of account.”

They removed the margin I never wanted. And the fee.

So, are you allowed to sell an ETF and buy a MF same day in this account without margin?

I don’t know, honestly. I rarely trade at all. At the time, I was consolidating my positions. When I I’ve done something like this at Vanguard, I’d get a warning that I couldn’t make a subsequent trade before this one settled or they’d be upset.

Or perhaps it was a different kind of trade and they made me wait a day. Either way, there was no margin and no fee in my experience. So Schwab was a surprise.

[Do_Nothing]

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

[alex_686]

Same thing happened to me after Ameritrade became Schwab.

I made the same kind of trade that I’ve always made. When I saw the charge I called them and they said “shouldn’t have happened since this a tax deferred account and we don’t allow margin on that type of account.”

They removed the margin I never wanted. And the fee.

So, are you allowed to sell an ETF and buy a MF same day in this account without margin?

It is considered a minor trade error. Frequently happens, much like a few miles above the speed limit.

Repeated errors will result if n first a warning and then a suspension of trading privileges.

[alex_686]

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

SEPPX settles in 1 day, do cash would be there for Apple on day 2.

[Do_Nothing]

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

SEPPX settles in 1 day, do cash would be there for Apple on day 2.

I don't think settlement time matters in a margin account, or at least that has been my experience. I've swapped ETFs with $0 cash balance and never got charged margin interest.

I tax loss harvested a couple of months ago with $0 in my brokerage account:

-Sold $50,000 of VTI
- Immediately Bought $50,000 of VOO with the unsettled cash. Never charged interest.

[student]

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

SEPPX settles in 1 day, do cash would be there for Apple on day 2.

I don't think settlement time matters in a margin account, or at least that has been my experience. I've swapped ETFs with $0 cash balance and never got charged margin interest.

I tax loss harvested a couple of months ago with $0 in my brokerage account:

-Sold $50,000 of VTI
- Immediately Bought $50,000 of VOO with the unsettled cash. Never charged interest.

You are doing ETF to ETF. This does not matter as both take the same amount of time to settle. OP is talking about ETF to MF.

[rkhusky]

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

SEPPX settles in 1 day, do cash would be there for Apple on day 2.

I don't think settlement time matters in a margin account, or at least that has been my experience. I've swapped ETFs with $0 cash balance and never got charged margin interest.

I tax loss harvested a couple of months ago with $0 in my brokerage account:

-Sold $50,000 of VTI
- Immediately Bought $50,000 of VOO with the unsettled cash. Never charged interest.

But that’s ETF -> ETF, not ETF -> MF.

[Do_Nothing]

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

SEPPX settles in 1 day, do cash would be there for Apple on day 2.

I don't think settlement time matters in a margin account, or at least that has been my experience. I've swapped ETFs with $0 cash balance and never got charged margin interest.

I tax loss harvested a couple of months ago with $0 in my brokerage account:

-Sold $50,000 of VTI
- Immediately Bought $50,000 of VOO with the unsettled cash. Never charged interest.

But that’s ETF -> ETF, not ETF -> MF.

But why should it matter? It's all unsettled cash.

[Turbo29]

Don't get charged at E*Trade when I do this.

[rkhusky]

But that’s ETF -> ETF, not ETF -> MF.

But why should it matter? It's all unsettled cash.

As mentioned above, MF’s settle in one day, ETF’s in two. When the MF buy is looking to settle, there is no cash. When the ETF buy is looking to settle, there is cash.

[tj-longterm]

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

SEPPX settles in 1 day, do cash would be there for Apple on day 2.

I don't think settlement time matters in a margin account, or at least that has been my experience. I've swapped ETFs with $0 cash balance and never got charged margin interest.

I tax loss harvested a couple of months ago with $0 in my brokerage account:

-Sold $50,000 of VTI
- Immediately Bought $50,000 of VOO with the unsettled cash. Never charged interest.

But that’s ETF -> ETF, not ETF -> MF.

But why should it matter? It's all unsettled cash.

When selling an ETF and buying an ETF on the same day, you owe the money in two days and receive the money in two days.

When selling an ETF and buying a mutual fund, you owe the money tomorrow but receive the money in two days. Therefore, you have borrowed money. There’s no special situation, everyone saying they haven’t experienced this is simply describing something different.

If you sell a mutual fund and buy an ETF on the same day, you will actually receive one day of interest (if your brokerage pays any).

[illumination]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

[nalor511]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

[illumination]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

But I'm saying this is exactly what I have done, and I haven't received any sort of interest fee. I sold an equity position and that same day, bought shares in a Schwab mutual fund (SNSXX Treasury Money Market)

Maybe it being a Schwab mutual fund or a money market made it a moot issue versus a different mutual fund?

I have also deposited a physical check in the afternoon at a Schwab branch (required for 401k contributions) and could buy a mutual fund that day in my account, despite the funds not having left my checking account yet.

[nalor511]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

But I'm saying this is exactly what I have done, and I haven't received any sort of interest fee. I sold an equity position and that same day, bought shares in a Schwab mutual fund (SNSXX Treasury Money Market)

Maybe it being a Schwab mutual fund or a money market made it a moot issue versus a different mutual fund?

That doesn't change the fact that settlement-time-wise, they're completely in the right to charge margin interest on this for one day. If they let you slide, that's great, but they didn't have to, and they're not in the wrong in any way for charging OP.

[alex_686]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

But I'm saying this is exactly what I have done, and I haven't received any sort of interest fee. I sold an equity position and that same day, bought shares in a Schwab mutual fund (SNSXX Treasury Money Market)

Maybe it being a Schwab mutual fund or a money market made it a moot issue versus a different mutual fund?

I have also deposited a physical check in the afternoon at a Schwab branch (required for 401k contributions) and could buy a mutual fund that day in my account, despite the funds not having left my checking account yet.

Some brokers will waive margin interest if less than a $1.00. Charging customers pennies is just not worth the hassle.

[illumination]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

But I'm saying this is exactly what I have done, and I haven't received any sort of interest fee. I sold an equity position and that same day, bought shares in a Schwab mutual fund (SNSXX Treasury Money Market)

Maybe it being a Schwab mutual fund or a money market made it a moot issue versus a different mutual fund?

That doesn't change the fact that settlement-time-wise, they're completely in the right to charge margin interest on this for one day. If they let you slide, that's great, but they didn't have to, and they're not in the wrong in any way for charging OP.

I'm not arguing with any of the settlement times or what Schwab is allowed to do, just stating that I do this all the time and haven't had the OP's experience. Maybe this policy effects newer accounts?

[illumination]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

But I'm saying this is exactly what I have done, and I haven't received any sort of interest fee. I sold an equity position and that same day, bought shares in a Schwab mutual fund (SNSXX Treasury Money Market)

Maybe it being a Schwab mutual fund or a money market made it a moot issue versus a different mutual fund?

I have also deposited a physical check in the afternoon at a Schwab branch (required for 401k contributions) and could buy a mutual fund that day in my account, despite the funds not having left my checking account yet.

Some brokers will waive margin interest if less than a $1.00.

I would think the amounts I have done this with would be greater than $1.00 interest.
I would also think they would let me know if I had incurred a fee, they would disclose what the fee amount was, and if they were waiving it.

The only thing I can guess is maybe certain accounts they extend this courtesy? Never had a warning or any communication that I wasn't supposed to be trading this way.


I'm not the only one it seems that hasn't been charged interest for doing this.

That is odd, I do exactly that all the time and never get charged margin.

On Thursday with $0 cash in my account, I sold out of SWPPX and purchased apple at the same time in my Roth IRA that has limited margin enabled.

The situation went like this:

- Sold $500 of SWPPX
- Purchased $500 fractional shares of Apple

My account showed -$500 for the day. But when the SWPPX sale went through after market close, my account showed a balance of $0. No margin interest charged. I've done this numerous times in the past in both my Roth IRA with limited margin enabled, and in my brokerage account with margin enabled and never been charged interest.

[Impatience]

In my experience brokerages usually look the other way out of courtesy / customer service. Exception is for newer or low-balance cash accounts or those who try to abuse it to day trade in a cash account. I’m not a professional though, just what I’ve observed.

[illumination]

In my experience brokerages usually look the other way out of courtesy / customer service. Exception is for newer or low-balance cash accounts or those who try to abuse it to day trade in a cash account. I’m not a professional though, just what I’ve observed.

That's sort of my read of it as well. I wonder if a newer account, they maybe have stricter guidelines?

At first, I just "policed" myself on this and would wait a few days to make a trade, but when I noticed Schwab recorded the funds as "available to trade" the instant I sold them or made a deposit, I said "why not?" and it has never been an issue.

I can even have a zero cash balance, buy an ETF, and then afterwards put a sale order in on a money market mutual fund and it never has been an issue or interest charge. So I don't need to leave "cash" that makes zero interest in my account at all times if I want to buy ETF's on say a "really bad day".

[toddthebod]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

But I'm saying this is exactly what I have done, and I haven't received any sort of interest fee. I sold an equity position and that same day, bought shares in a Schwab mutual fund (SNSXX Treasury Money Market)

Maybe it being a Schwab mutual fund or a money market made it a moot issue versus a different mutual fund?

I have also deposited a physical check in the afternoon at a Schwab branch (required for 401k contributions) and could buy a mutual fund that day in my account, despite the funds not having left my checking account yet.

I suspect the money market fund is treated differently, and if you went back and did very careful math, you would find that you did not earn interest for the first two days.

[illumination]

I do similar things all the time at Schwab, and have never incurred any sort of interest charge.

For example, I will sell an ETF and buy a different ETF for tax loss harvesting, and I can do that instantly and have had no interest charged. I can also sell an ETF and buy shares of a money market mutual fund on that same day, and again, no interest is charged for this.

The only time I see them be "sticklers" is if you make an ETF sale and then you try and transfer that "cash" out of the account, you have to let the funds clear for a few days before the funds are available.

It's all about settlement time.
Sell a MF, buy an ETF, no problem (because MF settles faster than ETF)
Sell an ETF, buy an ETF, no problem (because they settle together)
Sell MF, buy MF, no problem (because they settle together)
Sell an ETF, buy MF, PROBLEM (because the proceeds from the ETF sale are NOT settled when the MF buy order wants to settle, result=1day of interest paid)

But I'm saying this is exactly what I have done, and I haven't received any sort of interest fee. I sold an equity position and that same day, bought shares in a Schwab mutual fund (SNSXX Treasury Money Market)

Maybe it being a Schwab mutual fund or a money market made it a moot issue versus a different mutual fund?

I have also deposited a physical check in the afternoon at a Schwab branch (required for 401k contributions) and could buy a mutual fund that day in my account, despite the funds not having left my checking account yet.

I suspect the money market fund is treated differently, and if you went back and did very careful math, you would find that you did not earn interest for the first two days.

I don't see how you can tell an investor that the funds are available to trade, that the order went through and they purchased mutual fund shares on a certain date, and that purchase not really be true and secretly claw back interest. All sorts of potential fraud issues there. They would have to inform you the date of the purchase was delayed because funds haven't cleared. And I've also done it with Schwab mutual funds that weren't money market funds.

I think it's likely they just have different risk profiles and allow this quick settlement with some (maybe even most?) accounts as long as it's not being abused.

[ny10036]

Some brokers will waive margin interest if less than a $1.00. Charging customers pennies is just not worth the hassle.

In my case, I got charged about the price of a big mac (just the sandwich) in ny. So large enough to get annoyed, but not enough to call the authorities

[ny10036]

I'm not arguing with any of the settlement times or what Schwab is allowed to do, just stating that I do this all the time and haven't had the OP's experience. Maybe this policy effects newer accounts?

Would three years be considered new?

[ny10036]

In my experience brokerages usually look the other way out of courtesy / customer service. Exception is for newer or low-balance cash accounts or those who try to abuse it to day trade in a cash account. I’m not a professional though, just what I’ve observed.

The discussion here makes it sound like a case by case issue. I'm going to chat with Schwab and see if they can reverse the charge. If not, there's always fidelity.

[pizzy]

In my experience brokerages usually look the other way out of courtesy / customer service. Exception is for newer or low-balance cash accounts or those who try to abuse it to day trade in a cash account. I’m not a professional though, just what I’ve observed.

The discussion here makes it sound like a case by case issue. I'm going to chat with Schwab and see if they can reverse the charge. If not, there's always fidelity.

How much was the interest charge?

[alex_686]

I'm not arguing with any of the settlement times or what Schwab is allowed to do, just stating that I do this all the time and haven't had the OP's experience. Maybe this policy effects newer accounts?

Would three years be considered new?

Interest rates are higher now. If there is a dollar line as I suggested then the trade amount that would have triggered it would have fallen.

[ny10036]

How much was the interest charge?

$7 and change.

[jeffyscott]

...my Roth IRA that has limited margin enabled.

Hijacking the thread a bit...

I wonder if you or anyone else know what this "limited margin" actually allows?

I have not added it to my IRA accounts, as I've not run into any issues making trades without it (or at least nothing that I think it would affect).

When I posted about it, the only response seemed to imply that it would be for things like day trading .
viewtopic.php?t=403559

[RetiredAL]

In my experience brokerages usually look the other way out of courtesy / customer service. Exception is for newer or low-balance cash accounts or those who try to abuse it to day trade in a cash account. I’m not a professional though, just what I’ve observed.

The discussion here makes it sound like a case by case issue. I'm going to chat with Schwab and see if they can reverse the charge. If not, there's always fidelity.

You are always free to move, however, IMO you are making a mountain out of mole-hill. You didn't observe their settlement rule, and it does not matter what you think that rule should have been. As to Schwab allowing the purchase, you are the one that requested margin being turned on and under margin you can buy up to whatever your margin limit is, thus the transaction was allowed.

Your post will hopefully bring learning to those that did not understand this concept.

[toddthebod]

...my Roth IRA that has limited margin enabled.

Hijacking the thread a bit...

I wonder if you or anyone else know what this "limited margin" actually allows?

I have not added it to my IRA accounts, as I've not run into any issues making trades without it (or at least nothing that I think it would affect).

When I posted about it, the only response seemed to imply that it would be for things like day trading .
viewtopic.php?t=403559

Let's say you have no cash in your account. On Monday you sell $10,000 of AAPL and buy $10,000 of MSFT. On Tuesday you sell that lot of MSFT. You have incurred a Good Faith violation, because your sale of AAPL hasn't settled yet, and if you do this repeatedly, your trading on your account will be restricted. If you have margin enabled, you can borrow the money to cover the purchase of MSFT and avoid getting in trouble with your broker. Full margin available in a taxable brokerage allows you to buy and hold on margin, paying interest along the way. This is not allowed in an IRA. Limited margin is allowed, and can cover you for the day or two between execution and settlement of a trade.

[jeffyscott]

...my Roth IRA that has limited margin enabled.

Hijacking the thread a bit...

I wonder if you or anyone else know what this "limited margin" actually allows?

I have not added it to my IRA accounts, as I've not run into any issues making trades without it (or at least nothing that I think it would affect).

When I posted about it, the only response seemed to imply that it would be for things like day trading .
viewtopic.php?t=403559

Let's say you have no cash in your account. On Monday you sell $10,000 of AAPL and buy $10,000 of MSFT. On Tuesday you sell that lot of MSFT. You have incurred a Good Faith violation, because your sale of AAPL hasn't settled yet, and if you do this repeatedly, your trading on your account will be restricted. If you have margin enabled, you can borrow the money to cover the purchase of MSFT and avoid getting in trouble with your broker. Full margin available in a taxable brokerage allows you to buy and hold on margin, paying interest along the way. This is not allowed in an IRA. Limited margin is allowed, and can cover you for the day or two between execution and settlement of a trade.

Thanks and if that's all it does, essentially allowing day trading, I have no reason to add it.

The only things that I have run into are little inconveniences, like having to enter a sell order before a buy order, when the exact amount is not known. In those cases, it would be more convenient to enter the buy first.

For example, suppose that I want to buy about $10K of an individual TIPS and when I look I can buy 7 for a cost of $10,548. But since I have no cash or money market in the account, I have to enter a sell order first. So I might enter an order to sell $11,000 of a mutual fund to be sure there is more than enough for the TIPS buy order. After I buy the TIPS, I have to then do something to reinvest the extra leftover cash (or cancel the MF sell order and enter a new one for the exact amount).

Full margin would allow me to enter the TIPS buy order first, see that it goes through and what the exact cost is. I could then enter a sell order to cover this. Limited margin would not appear to allow that, since it says you can not borrow funds or carry a debit balance.

[ny10036]

You are always free to move, however, IMO you are making a mountain out of mole-hill. You didn't observe their settlement rule, and it does not matter what you think that rule should have been. As to Schwab allowing the purchase, you are the one that requested margin being turned on and under margin you can buy up to whatever your margin limit is, thus the transaction was allowed.

Your post will hopefully bring learning to those that did not understand this concept.

Definitely live and learn for me.

But hardly a "mountain". I can move everything out of schwab to fidelity in a few minutes through fidelity's website with a few clicks. It's a molehill and I'm merely expending a few minutes of effort to express my irritation at this meddlesome brokerage.

[student]

You are always free to move, however, IMO you are making a mountain out of mole-hill. You didn't observe their settlement rule, and it does not matter what you think that rule should have been. As to Schwab allowing the purchase, you are the one that requested margin being turned on and under margin you can buy up to whatever your margin limit is, thus the transaction was allowed.

Your post will hopefully bring learning to those that did not understand this concept.

Definitely live and learn for me.

But hardly a "mountain". I can move everything out of schwab to fidelity in a few minutes through fidelity's website with a few clicks. It's a molehill and I'm merely expending a few minutes of effort to express my irritation at this meddlesome brokerage.

If you want to move, the question is whether Fidelity operates in the same way.

[ny10036]

You are always free to move, however, IMO you are making a mountain out of mole-hill. You didn't observe their settlement rule, and it does not matter what you think that rule should have been. As to Schwab allowing the purchase, you are the one that requested margin being turned on and under margin you can buy up to whatever your margin limit is, thus the transaction was allowed.

Your post will hopefully bring learning to those that did not understand this concept.

Definitely live and learn for me.

But hardly a "mountain". I can move everything out of schwab to fidelity in a few minutes through fidelity's website with a few clicks. It's a molehill and I'm merely expending a few minutes of effort to express my irritation at this meddlesome brokerage.

If you want to move, the question is whether Fidelity operates in the same way.

Given the discussion on settlement times here, it seems quite likely. But this etf->mf exchange is the first time I've ever done this in 10+ years of investing, and I think I'll be doing it at a similar frequency going forward if at all.

[RetiredAL]

You are always free to move, however, IMO you are making a mountain out of mole-hill. You didn't observe their settlement rule, and it does not matter what you think that rule should have been. As to Schwab allowing the purchase, you are the one that requested margin being turned on and under margin you can buy up to whatever your margin limit is, thus the transaction was allowed.

Your post will hopefully bring learning to those that did not understand this concept.

Definitely live and learn for me.

But hardly a "mountain". I can move everything out of schwab to fidelity in a few minutes through fidelity's website with a few clicks. It's a molehill and I'm merely expending a few minutes of effort to express my irritation at this meddlesome brokerage.

If me, I'd be careful about assuming Fidelity will 'eat' the settlement day difference without doing some tests.

I can't test it, because I have too much $ in non-core money market, which Fidelity will automatically tap if the core does not have sufficient funds to complete the transaction. It would take a 6 digit transaction for me to test, and that alone would make me uncomfortable.

I did a near test of this with my Dad's Schwab account several years ago, just to see how margin worked, as a learning item. I bought but did not transfer the money until 1 day after settlement, and Schwab applied margin and cleared it as soon as I had Schwab do an ETF pull from checking.

[jeffyscott]

But hardly a "mountain". I can move everything out of schwab to fidelity in a few minutes through fidelity's website with a few clicks. It's a molehill and I'm merely expending a few minutes of effort to express my irritation at this meddlesome brokerage.

You could also remove margin from your Schwab account in a few minutes, though it might require a phone call. And then see what happens. See if they would still allow the trade, even though they would be unable to charge interest.

I don't have margin on any accounts, I don't know what the defaults were when the accounts were set up, but since I have no desire to invest borrowed money, I would have probably deselected it if it was on by default (at the time the accounts were opened, I would not have known enough to understand that margin might be used just to make some transactions easier to enter, without there actually being any borrowing or interest).

[ny10036]

Some updates that redeem Schwab but also reflect negatively on them.

1. I reached out to them and they were willing to reverse the charge, but they also made it very clear that I shouldn't do it again.
2. I did have a chance this past week to do the same at Fidelity, where I sold some RSUs that vested and immediately exchanged them to FAWXX. Aside from a warning about incurring a "good faith violation" (don't sell FAWXX before the sold funds settle), nothing negative happened.

So +1 for Fidelity and -1 for Schwab in terms of "good faith" for their customers.

[ofckrupke]

[*] I did have a chance this past week to do the same at Fidelity, where I sold some RSUs that vested and immediately exchanged them to FAWXX. Aside from a warning about incurring a "good faith violation" (don't sell FAWXX before the sold funds settle), nothing negative happened.

[Emphasis mine.]

Thats because you only have one wheel over the edge, so far...see

https://www.fidelity.com/learning-cente ... violations

That is, a good faith violation is a defined thing, with consequences according to timeline/multiplicity - not a nothing-except-as-surrounded-by-quote-marks.

But thank you for originating this topic. I agree that the Schwab Bank overdraft protection via linked brokerage account with access to margin is a vulnerability, and as a consequence had it (the overdraft protection) turned off via a phone call to CS at Schwab Bank.

[ny10036]

Thats because you only have one wheel over the edge, so far...see

https://www.fidelity.com/learning-cente ... violations

That is, a good faith violation is a defined thing, with consequences according to timeline/multiplicity - not a nothing-except-as-surrounded-by-quote-marks.

I did read that article. My understanding is that the violation is triggered when I sell the "margin" asset. Since I did not plan to and in fact did not sell the newly acquired MF, no violation occurred and Fidelity will not impose any fees or interest.

[4nursebee]

This whole thread and many if not most of its responses just sound off base.

I have money at Schwab. In my Roths and IRA rollovers I can sell stuff (stocks) and buy stuff with unsettled funds on the same day. There has never been an additonal charge and does not require use of margin. My taxable margin account also can sell and buy on the same day without margin charge.

There has to be another reason for this charge.

It is also entirely inappropriate to bring this to a forum without discussing it with the broker.

[ny10036]

There has to be another reason for this charge.

I confirmed with Schwab in my exchange. My etf->mf exchange with unsettled funds triggered the margin interest.

It is also entirely inappropriate to bring this to a forum without discussing it with the broker.

Why?

[LadyGeek]

I removed an off-topic post. As a reminder, see: General Etiquette

We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters.

[nisiprius]

...It might also be worth noting that my account is a margin account, not because I asked for it, but because it was the default option offered a few years ago, and I accepted assuming that I'm never going to use margin...

I still find this puzzling.

And I still don't understand why you haven't asked Schwab to convert your account into a cash account. Why are you hanging on to a margin account if you are "never going to use margin?"