Introduction to the Pledged Asset Line® (Demand)

Introduction to the Pledged Asset Line® (Demand)

A Pledged Asset Line (PAL) from Charles Schwab Bank, SSB ("Schwab Bank") or Charles Schwab Premier Bank, SSB ("Schwab Premier Bank"), (individually each an "Affiliated Bank," and collectively, "the Affiliated Banks"), is a flexible, non-purpose line of credit* allowing your client to leverage the value of their portfolio.

Secured by assets held in a separate Pledged Account maintained by Charles Schwab & Co., Inc. ("Schwab"), your client can use the line of credit to access funds they need while maintaining investment strategies.

This flexible line of credit can be used for a wide range of financial needs, including, but not limited to:

  • Real estate – borrowing against assets is one option for entering a competitive real estate market.
  • Tax payments – without ready access to cash, investors are sometimes forced to sell assets to cover a pressing tax bill – which can trigger its own taxable event.
  • Or other expenses such as: 
    • New business startup
    • College tuition
    • Dream vacation

A Pledged Asset Line offers:

  • Competitive interest rates and exclusive discounts with Investor Advantage Pricing as well as tiered pricing based on the loan value of collateral.
  • Flexibility – line amounts from $100,000 for Schwab Bank PALs and $250,000 for Schwab Premier Bank PALs (required minimum initial draw of $70,000; subsequent draws have no minimum).
  • Asset preservation – allows your client to borrow while maintaining investment strategies, avoiding potential tax consequences.
  • Affordable – no setup fees or prepayment penalties.

Investor Advantage Pricing

With our exclusive offer, the more qualifying assets you have with Schwab and Schwab Bank, the more you can save on you PAL interest rate. See FAQs below for more information on qualifying assets.

Interest Rate DiscountInterest Rate DiscountInterest Rate DiscountInterest Rate Discount
0.25%0.50%0.75%1.00%
$250,000 to <$750,000 
in qualifying 
assets   
$750,000 to <$4,500,000 
in qualifying 
assets
$4,500,000 to <$9,000,000 
in qualifying 
assets
$9,000,000+        
in qualifying 
assets

Collateral requirements

The Affiliated Banks require:

  • The assets pledged as collateral be held in a separate Pledged Account maintained at Schwab, and
  • The loan value of collateral of the assets held in the Pledged Account(s) equal or exceed the greater of (i) the minimum loan value of collateral (currently $100,000 for consumer PALs and $250,000 entity PALs) and (ii) the outstanding loans. 

Collateral for the flexible line of credit generally includes:

  • Marginable equity securities valued at or above $3/share at the time of funding and closing.
  • Most mutual funds and exchange-traded funds.
  • Certificates of deposit and cash.
  • Many corporate, Treasury, municipal, and government agency bonds.

Retirement assets are not eligible.

Risks

Entering a Pledged Asset Line and pledging securities as collateral involve a high degree of risk.

At any time, including if the loan value of collateral is insufficient to satisfy the minimum loan value of collateral or to support the outstanding loans, the Affiliated Bank may demand immediate payment of all or any portion of the outstanding obligations, or require additional cash or securities to be added to the Pledged Account maintained at Schwab. 

Possible risk management strategies are:

  • Pledging more securities than needed to provide cushion in times of market volatility.
  • Diversification – reduces the risk of demand due to a single security's drop in value.
  • Monitor the collateral account – anticipating a decline in value especially during times of market instability.

Questions

Contact your Regional Banking Manager at 800-986-3700 for additional information about PAL.

Affordable rates

Loan Value of Collateral at Origination IndexIndexInterest Rate Spread
$100,000 to <$250,000


SOFR
 
4.40%
$250,000 to <$500,0003.90%
$500,000 to <$1,000,0003.40%
$1,000,000 to <$2,500,0002.90%
$2,500,000 and above2.40%

Annual Percentage Rates (APR) are variable and are based on the daily Secured Overnight Financial Rate (SOFR) plus an Interest Rate Spread (based on the loan value of collateral at origination).

What is a Schwab Bank and Schwab Premier Bank Pledged Asset Line flexible line of credit?
The Pledged Asset Line is an uncommitted revolving non-purpose flexible line of credit* secured by assets held in a separate Pledged Account maintained by Schwab. All loan requests are accepted or rejected in the Affiliated Bank's sole discretion.

Are there limitations to using proceeds?
Proceeds must be used for a lawful personal, commercial, or business purpose under state, federal, or other applicable law and may not be used to purchase securities, pay down margin loans, or be deposited into any brokerage account.

What types of borrowers are eligible?
Eligible borrowers for Schwab Bank include individuals (borrowing either individually or jointly) and revocable living trusts.

Eligible borrowers for Schwab Premier Bank include irrevocable trusts, incorporated organizations (C and S corporations), and non-incorporated organizations (limited liability companies, limited partnerships, limited liability partnerships, and general partnerships).

How long is the term?
There is no stated maturity date.

At any time, the Affiliated Bank may demand immediate payment of all or any portion of the outstanding obligations or require additional cash or securities to be added to the Pledged Account.

What is the interest rate?
Interest rates are based on the market-driven Secured Overnight Financing Rate (SOFR) plus an Interest Rate Spread. The Interest Rate Spread is determined based on the loan value of collateral at the time the line of credit is opened.

Changes in the interest rate may cause the monthly payments to change and may increase the cost of borrowing. The Affiliated Bank reserves the right to change any part of the interest rate after the PAL is established, including the index rate, Interest Rate Spread, or post-Demand spread.

Are monthly payments required?
Monthly interest charges are due on the payment due date. If current interest charges are not paid on or before the payment due date and there is sufficient available credit, the client will be deemed to request a loan in the amount of such charges, and the Affiliated Bank may, at its sole discretion, honor such request and add such amount to the PAL principal amount. If added to the PAL principal amount, this will result in the negative amortization of the loans, and the client will pay more finance charges over the life of the PAL and increase the total principal indebtedness. If the monthly payment is not made, or the interest is not capitalized, a $25 late fee will be imposed for late payments.

Upon the Affiliated Bank's Demand, all, or any portion of, the outstanding loans plus all accrued and unpaid interest charges, fees, and other obligations are immediately due and payable.

How is available credit calculated?
The aggregate loans, which may be requested are determined based on the Loan Value of Collateral held in the associated Pledged Account(s) and applicable credit limit(s), each as determined by the Affiliated Bank in its sole discretion, minus outstanding loans. As an uncommitted line of credit, all PAL loan requests are accepted or rejected in the sole discretion of the Affiliated Bank.

What are fees and charges?
There are no fees to apply for the line of credit, and there are no account opening or maintenance fees on the Pledged Account (brokerage commissions and other fees may apply).

The only fee associated with the line of credit is a late payment fee of $25.

Who’s responsible for investment decisions?
The Affiliated Banks do not provide investment advice with respect to the Pledged Account, any securities held in the Pledged Account, or any transactions therein. Unless otherwise specified or agreed, the Affiliated Banks also do not make recommendations about the Pledged Account, assets held in the Pledged Account, or any transactions in the Pledged Account.

What are the risks?
Entering into a Pledged Asset Line and pledging securities as collateral involve a high degree of risk. At any time, including in the event the loan value of collateral is insufficient to satisfy the minimum loan value of collateral or to support the outstanding loans, the Affiliated Bank may demand immediate payment of all or any portion of the outstanding obligations, or require additional cash or securities to be added to the Pledged Account maintained at Schwab.

If a Demand is not addressed, the pledged securities may be immediately liquidated without further notice to the client, which may result in tax consequences.

Are there collateral requirements?
The Affiliated Bank requires the assets pledged as collateral be held in a separate Pledged Account maintained at Schwab, and, at all times, the loan value of collateral of the assets held in the Pledged Account(s) equal or exceed the greater of (i) the minimum loan value of collateral (currently $100,000 for Consumer PALs and $250,000 for entity PALs) and (ii) the outstanding loans.

The Affiliated Bank, in its sole discretion, determines what collateral is eligible collateral and the loan value of collateral.

Are there any minimum advance requirements?
The first advance made against a Pledged Asset Line must meet or exceed the minimum initial advance amount (currently $70,000). After the minimum initial advance has been satisfied, subsequent advances can be made in lesser amounts subject to available credit.

What is a Pledged Account? 
The Pledged Account is a limited-purpose brokerage account with Schwab, an affiliate of Schwab Bank and Schwab Premier Bank. This account holds the client's assets pledged as collateral for the line of credit. There are no account opening or maintenance fees (brokerage commissions and other fees may apply).

 The following limitations are established on the Pledged Account:

  • No margin capability
  • No option trading
  • No payment features, including check writing, debit card, or bill pay privileges
  • Only assets constituting Eligible Collateral may be acquired
  • Pledged Account settlement terms require cash in advance

How does the Affiliated Bank determine the assets used to fund the new Pledged Account? 
During the application process, the client determines the securities and cash positions pledged for the line of credit. Once the application is approved, the client will have authorized the Affiliated Bank to move eligible assets being pledged as collateral from the client's Schwab brokerage account to the respective Pledged Account (which is the brokerage account required to be pledged to the Affiliated Bank). Depending on the scenario, a Pledged Account can be funded by another Schwab brokerage account using a journal transaction or can be funded by a transfer of assets from another firm.

What features are available on the Pledged Account?

Available
  • Limited power of attorney/full power of attorney
  • Schwab One® Interest

 

Unavailable

 

  • Bank Sweep Interest Schwab BillPay®
  • Schwab Bank Investor CheckingTM
  • Margin
  • Schwab MoneyLink®
  • Options trading
  • Schwab One Checks
  • Schwab One Visa® Platinum Debit Card

 

Are there restrictions on withdrawals?
Withdrawals may be allowed if there is no demand or restriction on the PAL, and the loan value of collateral following the withdrawal remains above the required loan value of collateral. Withdrawals must be approved in advance by the Affiliated Bank.

 What are the options for making a payment?
Payments can be made to the PAL by: 

How can the borrower close their account?
The client may call Schwab Bank at 800-838-6573 or Schwab Premier Bank at 877-566-3312 to request a release or determine the payoff amount for any outstanding balance on the line. Payoff amounts ("Total Obligations") are also visible to clients on Schwab Alliance and the Schwab Mobile app. Advisors can see these amounts also on Schwab Advisor Center.

Once any outstanding balance is paid in full, clients may submit a closure request form or call the Affiliated Bank to begin the account closure process.

Can a client refinance a pledged asset line of credit with another firm to Schwab Bank or Schwab Premier Bank?
Yes, if it is a non-purpose line of credit. Contact your Regional Banking Manager at 800-986-3700 to schedule an application appointment.

Can managed accounts be used as collateral?
Yes, but Pledged Accounts are only eligible to be enrolled in the Managed Account Marketplace® platform.

Can a client have more than one Pledged Account?
Yes. The client may have as many Pledged Accounts as they need to secure collateral for the Pledged Asset Line.

Is the client required to take the initial advance within a certain timeframe after PAL opening?
No, clients can generally make an initial advance at any time, given the loan value of the collateral in the Pledged Account has not fallen below the minimum loan value of collateral (currently $100,000 for Schwab Bank PALs and $250,000 for Schwab Premier Bank PALs). Note: loan requests made on the Pledged Asset Line are accepted or rejected in the Affiliated Bank's sole discretion.

What is the Investor Advantage Pricing program? 
The Affiliated Banks' Investor Advantage Pricing (IAP) offers exclusive rate discounts for Schwab clients on Pledged Asset Lines (PAL). All PALs are eligible for an interest rate discount of 0.25% - 1.00% based on qualifying assets of $250,000 or greater. This interest rate discount cannot be combined with any other offers or rate discounts.

What borrower types are eligible for PAL Investor Advantage Pricing?
Individual, Joint, Revocable living trust, and Irrevocable trust borrowers are eligible for IAP; organization borrowers are not eligible for IAP. 

For more information, or to request an application package, contact the Regional Banking Manager hotline at 800-986-3700.

For a list of common PAL terms and definitions, review the Pledged Asset Line glossary.

Go to the Forms library on Schwab Advisor Center and select the forms below.

Form: PAL Internal Transfer (Journal) One-Time Authorization
Form: PAL Automatic Payment Authorization Form
Form:  PAL Release of Excess Assets Form
Form: PAL Wire Transfer Request and Authorization
Form: Transfer Your Account to Schwab
Digital Pledged Asset Line® application overview

How to add or remove a trading and withdrawal authorization or power of attorney to an account 
How to use DocuSign®

*The Pledged Asset Line is a demand line of credit provided by either Charles Schwab Bank, SSB, or Charles Schwab Premier Bank, SSB, (each, an Affiliated Bank and together, the Affiliated Banks). As a non-purpose line of credit, proceeds may not be used to purchase securities, pay down margin loans, or be deposited into any brokerage account.

Entering into a Pledged Asset Line and pledging securities as collateral involves a high degree of risk. You are pledging securities, the value of which is affected by events outside your control. Market fluctuations may cause the value of your pledged assets to decline.  In addition, the Affiliated Banks, in its sole discretion, will determine at any time the eligible collateral criteria and the loan value of collateral. The Pledged Asset Line is uncommitted and the Affiliated Banks may demand full repayment at any time for any reason or no reason. In addition, if the loan value of collateral is insufficient to satisfy the minimum credit facility size or to support the outstanding loans, the Affiliated Banks may demand immediate payment of all or any portion of the outstanding obligations, or require additional cash or securities be pledged;  otherwise the Affiliated Banks may immediately sell some or all of the pledged securities without further notice to you, which may result in tax consequences.

A Pledged Asset Line requires a brokerage account ("the Pledged Account") at Charles Schwab & Co., Inc. and sufficient eligible collateral to support a minimum credit facility size of $100,000.  Brokerage products, including the Pledged Account, are offered by Charles Schwab& Co., Inc., Member SIPC and are not insured by the FDIC, are not deposits or obligations of Affiliated Banks, and are subject to investment risk, including the possible loss of principal invested. The Affiliated Banks are not acting or registered as securities broker-dealers or investment advisors.

Pledged Asset Lines to be held individually, jointly by natural persons, or by revocable trusts are offered by Charles Schwab Bank, SSB. Pledged Asset Lines to be held by incorporated organizations, non-incorporated organizations, or irrevocable trusts (collectively "entities") are offered by Charles Schwab Premier Bank, SSB.

Minimum initial advance of $70,000 required. All loans are subject to credit and collateral approval. Before you decide to apply for a Pledged Asset Line, make sure you understand the risks.

For Charles Schwab Bank & Charles Schwab Premier Bank Pledged Asset Line (PAL) Investor Advantage Pricing (IAP):  PALs to natural persons and trusts are eligible for only one Investor Advantage Pricing discount per loan. PALs are eligible for an interest rate discount between 0.25% and 1.00% based on Borrower's Schwab brokerage and Schwab Bank combined qualifying assets totaling $250,000 or greater. Loans to organizational borrowers are not currently eligible for IAP discounts.  

A. For PAL loans made to individuals, the "Borrower" is defined as any natural person(s) identified as Borrower(s) in the PAL loan application. Qualifying assets are based on the combined account balances as listed below: 
    a.   Brokerage accounts in which the Borrower is an owner, trustee or custodian;  
    b.   Bank deposit accounts in which the Borrower is an owner or trustee: checking & savings;  
    c.   Non-retirement Corporate, LLC, Partnership and Sole Proprietorship accounts may be eligible depending on the Borrower's ownership and role (excludes business retirement accounts such as Simple IRA, SEP IRA & Pension Trust).  
B. For PAL loans made to revocable trusts, the "Borrower" is defined as the Trust named in the PAL loan application. Qualifying assets are based on the combined account balances as listed below: 
    a.   Brokerage accounts in which the Borrower is an owner;  
    b.   Bank deposit accounts in which the Borrower is an owner: checking & savings;  
    c.   The qualifying assets, as outlined in Section A above, of any natural person(s) named as BOTH "Trustee of Trust Borrower" AND "Grantor of Trust Borrower" as identified in the PAL loan application.  
C. For PAL loans made to irrevocable trusts, the "Borrower" is defined as the Trust named in the PAL loan application. Qualifying assets are based on the combined account balances as listed below: 
     a.   Brokerage accounts in which the Borrower is an owner;  
     b.   Bank deposit accounts in which the Borrower is an owner: checking & savings;  

Clients of Independent Investment Advisors: Qualifying assets are based on non-retirement Schwab brokerage and Schwab Bank combined account balances. Retirement accounts, including all IRAs, are excluded from this offer.

Schwab Bank and Schwab Premier Bank make their best effort to identify all qualifying assets based on your client profile. If you have questions regarding your specific assets or account eligibility, please call your Regional Banking Manager for assistance.

Qualifying new assets must be deposited prior to the start of an application to be considered for discount purposes.

Charles Schwab Bank, SSB, Charles Schwab Premier Bank, SSB (each, an Affiliated Bank and together, the Affiliated Banks), and Schwab are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Pledged Asset Lines to be held individually, jointly by natural persons, or by revocable trusts are offered by Charles Schwab Bank, SSB. Pledged Asset Lines to be held by incorporated organizations, non-incorporated organizations, or irrevocable trusts (collectively "entities" are offered by Charles Schwab Premier Bank, SSB. Brokerage products, including the Pledged Account, are offered by Charles Schwab & Co., Inc., Member SIPC and are not insured by the FDIC, are not deposits or obligations of Affiliated Banks, and are subject to investment risk, including the possible loss of principal invested. The Affiliated Banks are not acting or registered as securities broker-dealers or investment advisors.  

The Managed Account Marketplace® ("Marketplace") platform is not a program sponsored by Schwab, but rather an open architecture platform that gives investment advisors and their clients access to separate account managers and turnkey asset management platform ("TAMP") providers. Participating money managers (MMs) and TAMP providers need to establish a contract and have system compatibility with Schwab in order to be in Marketplace. The MMs, TAMP providers and their investment strategies available in Marketplace are not evaluated by Schwab. TAMP services may vary depending on which TAMP provider you choose. Schwab does not recommend or endorse any particular TAMP. Schwab is not affiliated with any of the TAMPs available in Marketplace. Schwab makes no representation or warranty about any TAMP or its suitability for your clients. Schwab does not guarantee accuracy of the information about the services provided by any particular TAMP.

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