How Does Schwab Earn Money From Your Cash?

Schwab earns money from your cash by holding it, lending it out or investing it at a higher rate than it pays you. Net interest revenue was $3.48 billion of its $7.17 billion third-quarter 2026 revenue, about 48%, at a net interest margin of 3.04%, up from 2.88% a year earlier.

• The cash comes from uninvested client money in sweep and bank accounts and goes into loans (bank loans up 35% to $72.3 billion, margin loans up 93% to $187.9 billion) and securities.
• The rest of revenue comes from asset management fees, trading and bank deposit account fees.
• The shares closed at $90.58, 20% below their high.

This is analysis, not a recommendation.

Where does Schwab's revenue come from?

How does Schwab earn money on your cash?

When you leave cash uninvested at Schwab, it usually sits in a sweep account or bank deposit. Schwab pays a low rate on that cash, and earns more by lending it out as margin loans to clients buying on credit, as bank loans such as pledged asset lines (loans secured by a portfolio), and by holding securities. The gap is the net interest margin, which was 3.04% in the quarter on average interest-earning assets of $451.5 billion.

Bank deposit account fees, which Schwab earns for the cash that third-party banks hold for its clients, rose 40% on a better net yield. Management said the cash balances are consistent with client assets and that the movement of money back into the market was not cash sorting, which is clients moving cash to higher-yielding products. The CEO added that the more people use AI, the more cash they hold.

What do interest rates do to Schwab?

The CFO said Schwab remains asset-sensitive: it benefits when rates rise, because the yield on its assets reprices faster than what it pays out. The sources gave a sensitivity of $250 million to $300 million of net interest revenue, without stating the rate move behind it, and management said it thinks of the margin as the Fed funds rate plus a spread. It expects fourth-quarter net interest margin expansion of about 25 to 30 basis points on the year, and expansion to continue into 2027.

The risk is the reverse. If clients move cash into higher-yielding products (cash sorting), the cheap funding that supports the margin shrinks. About $190 billion of securities yield under 2%, so they can be replaced with higher-yielding assets as they mature, which supports the margin. A shrinking pool of cheap cash would offset that.

How did the latest quarter go, and why did the stock fall?

Shares fell about 4% before the open after a record quarter. The company's own materials gave no reason, and the explanation offered in press coverage, a small revenue shortfall against expectations and worries about cash balances, is the writer's inference. The price of $90.58 is 20% below its 52-week high of $114.53, with an RSI of 30.4, close to oversold.

How does SCHW look on this site's checks?

From the weekly data of October 23, 2026, on the Schwab stock page:

Schwab passes 6 of 8 filters, more than any other stock in this group. The P/E of 14.7 is low for a business with a 35% net margin, which is the market's way of pricing the interest-rate and cash-sorting risk. What is a good P/E ratio explains how to judge that, and does an inverted yield curve predict a recession covers the rate setting.

What should you read next?

Two more explainers on companies in the same screen: how does Carvana make money selling used cars, and why is Casey's pizza its secret profit engine.

Sources

• Schwab Q3 2026 earnings release (SEC, October 15, 2026): revenue, margin, balances
• Investing.com: Charles Schwab posts record Q3 2026 results but shares fall (October 15, 2026): call comments on cash and rates
• Schwab on this site: price and ratios, October 23, 2026

The Benzinga transcript could not be read, and the rate-cut sensitivity was not addressed in the call text read. This is educational content, not investment advice.

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