3 Brokerage Stocks That Could Benefit From Higher Fed Rates

With inflation stuck at 3.4% and the Fed widely expected to lift rates again, cash is no longer just dead weight in a brokerage account; it is earning power. Higher short term yields can quietly reshape how brokerages and custody platforms make money from idle balances. This article walks through 3 stocks exposed to that policy shift so you can see where higher rates may help or hurt.

The three companies below are a sample of this theme. The full screen surfaced 31 more US brokerages and custody platforms with similarly interesting cash and rate exposure that are not covered here. To identify your own highest conviction angles on this idea, head straight to the US Cash-Rich Brokerages and Custody Platforms Benefiting from Higher Short-Term Rates screener.

LPL Financial Holdings (LPLA)

LPL Financial Holdings is a focused example in this screener of how higher short term rates can turn idle client cash into fee-like revenue for an advisor platform. This makes its earnings profile closely linked to the Federal Reserve’s future decisions.

LPL Financial Holdings operates a US based brokerage and advisory platform for independent advisors. It earns all of its US$19.2b revenue from brokerage services and client cash programs, with a market value around US$27.9b.

"LPL's heavy reliance on interest rate-sensitive cash sweep revenues exposes its earnings to significant volatility in a low or declining interest rate environment, which could lead to margin compression and reduced net income when rates normalize or decline."

The key question is what happens to LPL Financial’s earnings power if a single assumption about how client cash behaves around future Fed moves proves too optimistic.

If that cash behavior question is on your mind, read the full narrative for LPL Financial Holdings to see how LPL Financial Holdings’ earnings risk might be masking longer term upside potential.

Charles Schwab (SCHW)

Charles Schwab is a flagship example for this screener theme because so much of its sprawling brokerage and custody business turns idle client cash and margin balances into interest income when short term rates move.

The Charles Schwab Corporation runs a large US focused brokerage, banking and advisory platform that leans heavily on cash management and custody. It generated about US$20.5b from Investor Services and US$5.5b from Advisor Services, and the stock carries a market value near US$185.5b.

"As interest rates stabilize after a historically aggressive tightening cycle, the pressure on Schwab’s interest margins begins to ease."

What really matters for Schwab now is how one quiet shift in client cash behaviour feeds through to those easing margins.

If you want to see how that client cash shift could be accelerating or stalling value for Charles Schwab, read the full narrative for Charles Schwab for the full picture.

UP Fintech Holding (TIGR)

UP Fintech Holding runs the Tiger Trade platform for Chinese investors globally, where client cash and margin balances sit at the heart of how higher short term rates feed into earnings. It generated about US$607 million from brokerage activity and carries a market value near US$860 million.

UP Fintech Holding links the Fed rate story directly to client wallets, since idle balances and margin funding both live inside its Tiger Trade platform.

"The company faces mounting geopolitical risks, especially intensifying US-China tensions and increasing digital protectionism. These factors threaten cross-border investment flows and could force UP Fintech to adopt costly compliance measures or face outright regulatory restrictions in its key growth markets."

What happens to UP Fintech Holding’s earnings power if one pressure on cross border activity ends up hitting client cash balances harder than expected?

When that cross border pressure is front of mind, read the full narrative for UP Fintech Holding to see how UP Fintech Holding’s rate exposure and growth ambitions could be decoupling.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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