Brokers With Lowest Margin Interest Rates

Recently I did some research into brokers with low margin interest rates and with low trading commissions ($3 or less per trade). Since I already had them all typed out in my notes, I thought I would post them in case someone else might find it useful. The rates are valid on or around April 28, 2009.

eOption.com (affiliated with placetrade and investrade) (see important update below)

  • BC + 1.5% = 3.5% for up to $50,000
  • BC + 0.75% = 2.75% for $50,000 to $99,999
  • BC + 0.0% = 2.0% for $100,000 to $249,999
  • BC – 0.5% = 1.5% for $250,000 to $499,999
  • BC – 1.0% = 1.0% for $500,000 and above
  • Interest @ 2.75% for $80k a month = $183.33, after tax = $100.83
  • Interest @ 2% for $100k a month = $166.67, after tax = $91.67
  • Trading fees : $3 per ticket
  • ACH transfer limit = $50,000 a day

Just2trade

  • BC + 0.75% = 2.75% for up to $100,000 (confirmed with them that there is a typo on their margin rates page)
  • BC + 0.5% = 2.50% for $100,000 to $250,000
  • Interest @2.75% for $80k a month = $183.33, after tax = $100.83
  • Interest @2.50% for $100k a month = $208.33, after tax = $114.58
  • Trading fees : $2.50 per ticket

Interactive Brokers

  • BM + 1.5% = 1.65% for up to $100,000
  • BM + 1% = 1.15% for $100,000 to $1,000,000
  • BM = Feds fund rate = 0.15%
  • Interest @1.65% for $80k a month = $110.00, after tax = $60.5 + $10 monthly fee
  • Interest @1.15% for $100k a month = $95.83, after tax = $52.71 + $10 monthly fee
  • Minimum fee $10 a month
  • Trading fees : 0.005 per share, minimum $1
  • 2nd withdrawal in the month : $1 by ACH, $4 by check, $10 by wire

Options House

  • BC + 2.25% = 4.45% for up to $50,000
  • BC + 1.45% = 3.45% for $50,000 to $499,999
  • BC + 0.45% = 2.45% for over $500,000
  • Interest @ 3.45% for $80k a month = $230, after tax = $126.5
  • Trading fees = $2.95 per ticket

WellsTrade (Wells Fargo) (called 4/28/09 10.10am)

  • WFI, Wells Fargo base rate = 4.00%
  • WFI + 3% = 7% for up to $10k
  • WFI + 2.75% = 6.75% for $10k to $25k
  • WFI + 2.25% = 6.25% for $25k to $50k
  • WFI + 1.75% = 5.75% for $50k to $100k
  • WFI + 1.25% = 5.25% for $100k to $250k
  • Trading fees : up to 100 free trades a year

Note: BC is the broker call rate, currently 2%. The “after tax” number reflects a 45% combined federal and state marginal income tax bracket.

Comments

The absolute lowest rates are from Interactive Brokers but they want to charge you a minimum of $10 in trade fees a month. If your trade fees do not add up to $10, they will deduct $10 anyway.

The next best rates are from eOption.com — at BC = 2% for amounts from $100k to $250k. This rate is lower than the interest rates from leading savings accounts, and is also cheaper than a HELOC loan.

I included the margin schedule at WellsTrade for comparison only because I have an account there. Their rates are not at all competitive.

I also looked at some other brokerages like Fidelity, VBS (Vanguard), TD Ameritrade, Scottrade, Firstrade, Tradeking, Etrade, Charles Schwab, Options Express, Sogotrade, MB Trading. Their rates are all higher.

Other resource(s)

[1] List from Broker Reviews.

Update 8/03/2009

eOption increased their margin rates as of 8/1/09. The new schedule is as follows (BR, base rate is 5%):

  • BR = 5.0% for up to $50,000
  • BR – 0.5% = 4.5% for $50,000 to $99,999
  • BR – 1.0% = 4.0% for $100,000 to $249,999
  • BR – 1.5% = 3.5% for $250,000 to $499,999
  • BR – 2.0% = 3.0% for $500,000 to $999,999
  • BR – 2.5% = 2.5% for $1,000,000 and above

5 Comments

  1. Tom

    Hmm playing with margin is almost like playing with fire. You can make more $$$ but can get burnt also.

    Reply
  2. Loi Tran

    Thank you for your analysis. I am going to open a Wells Trade account today. I did research similar to yours trying to find out the lowest margin rates. Keep up the good work.

    Reply
  3. indexfundfan (Post author)

    Thanks Loi. I do read your blog too.

    Reply
  4. Pingback: The Bet Trade

  5. James Watson

    Well, Tom, it seems that almost nobody understands how to manage high margin trades properly. It’s obvious that the risk is higher but it can be controlled and that’s something every trader should learn sooner or later.

    Reply

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