Where your cash earns interest at Schwab

Cash in a Schwab brokerage account earns interest through Schwab Bank Investor Checking or by holding it in a money market fund. The checking account currently pays a variable interest rate set by Schwab and updated periodically — you can see the current rate on Schwab's website. Money market funds held inside your brokerage account also pay interest, though the rate varies by fund and changes daily based on market conditions.

The difference matters: checking account interest is FDIC-insured up to $250,000 per account owner, while money market funds are not insured but often pay slightly higher rates. Most people use checking for safety and simplicity, especially if they keep less than $250,000 in cash.

You do not have to choose one or the other. Many Schwab customers keep some cash in checking for stability and some in a money market fund to chase slightly higher returns.

Key Takeaways

  • Schwab Bank Investor Checking automatically earns interest on your cash balance with no minimum deposit required, and the rate is FDIC-insured.
  • Money market funds inside your brokerage account may pay higher rates than checking but carry no insurance protection and fluctuate daily.
  • Interest rates at Schwab change periodically and are posted on their website — you can compare them to other banks and funds before deciding where to hold cash.
  • You can move cash between checking and money market funds within your Schwab account without tax consequences, so you can shift amounts based on rate changes.

How Schwab Bank Investor Checking works

When you open a Schwab brokerage account, you automatically get a linked Schwab Bank Investor Checking account. Any cash you deposit or hold in that account earns interest at the current Schwab rate. You do not need to take any action to turn interest on — it accrues automatically on your daily balance.

The rate is variable, meaning Schwab can change it at any time. Schwab typically adjusts rates when the Federal Reserve changes its benchmark rate, but the timing and amount of change is Schwab's decision. You can check the current rate by logging into your Schwab account or calling Schwab customer service.

Interest compounds daily and posts to your account monthly. That means you earn interest on your interest, though the effect is small unless you hold a large balance for many months.

Money market funds as an alternative

A money market fund is a mutual fund that invests in short-term debt — Treasury bills, commercial paper, and other very safe, short-duration bonds. The fund pays a dividend yield that changes daily based on what those underlying investments pay. You can buy money market funds inside your Schwab brokerage account just like you would buy a stock or ETF.

Money market funds often pay more than checking accounts, especially when interest rates are high. However, the yield is not may provide and can drop quickly if market conditions change. Also, money market funds are not FDIC-insured, so if the fund itself failed (extremely rare), you could lose money.

Schwab offers its own money market funds, such as Schwab Value Advantage Money Fund, as well as money market funds from other providers. You can compare the current yield of each fund on Schwab's platform before you buy.

Comparing rates and deciding where to hold cash

The best choice depends on three things: the current interest rate difference, how long you plan to hold the cash, and how much you have. If Schwab checking pays 4.5% and a money market fund pays 4.8%, the difference is small — 0.3% — and may not be worth the extra complexity or the loss of FDIC insurance.

If you hold $100,000, that 0.3% difference is $300 per year. If you hold $10,000, it is $30 per year. For many people, the simplicity and safety of checking makes it the better choice even at a slightly lower rate.

Check Schwab's website or your account dashboard to see the current checking rate and compare it to the yields of available money market funds. Rates change frequently, so what makes sense today may not make sense in three months.

Moving cash between checking and money market funds

You can move money between your Schwab checking account and a money market fund within your brokerage account when ready, with no tax consequences. If rates shift and a money market fund becomes more attractive, you can sell the fund and move the proceeds to checking. If you need cash quickly, you can sell the fund and it settles in one business day.

Buying and selling money market funds inside a brokerage account does not trigger a taxable event — you only owe taxes on the interest or dividends the fund paid you. This makes it straightforward to rebalance your cash holdings as rates change without worrying about tax bills.

Keep in mind that money market funds can fluctuate slightly in value, though the swings are usually tiny. If you buy a fund at $1.00 per share and rates rise, the fund value might drop to $0.99 per share. This is normal and usually not a concern if you are holding the fund short-term.

Tax treatment of interest and dividends

Interest from Schwab checking and dividends from money market funds are both taxable income in the year you earn them. Schwab will send you a 1099-INT or 1099-DIV form at the end of the year showing how much you earned, and you report that amount on your tax return.

The tax rate depends on your overall income and tax bracket. Interest and dividends are usually taxed as ordinary income, not at the lower capital gains rate. If you hold a large cash balance earning significant interest, set aside money for taxes or adjust your withholding.

If your cash is in a tax-advantaged account like a Schwab IRA or 401(k), interest and dividends are not taxed in the year you earn them — you only pay taxes when you withdraw money in retirement.

Frequently Asked Questions

Does my cash automatically earn interest in a Schwab brokerage account?

Yes. Any uninvested cash in your Schwab Bank Investor Checking account earns interest automatically at the current Schwab rate. You do not need to open a separate account or take any action.

What is the current interest rate on Schwab checking?

Schwab's rate changes periodically and is posted on their website and in your account dashboard. Call Schwab or log in to see the current rate — it is not fixed and varies over time.

Is my cash insured if I keep it in a money market fund?

No. Money market funds are not FDIC-insured. Schwab checking is insured up to $250,000 per account owner. If safety is your priority, keep cash in checking rather than a money market fund.

Can I move money between checking and a money market fund without paying taxes?

Yes. Moving cash between accounts within your Schwab brokerage does not trigger a taxable event. You only owe taxes on the interest or dividends the money market fund paid you.

What happens to my interest if Schwab lowers its rate?

Your interest rate will drop to match Schwab's new rate. You will earn less on your balance going forward, but interest already earned stays in your account. If rates drop significantly, you may want to compare Schwab's rate to other banks.