indexfundfan @ indextown

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)

• BC + 1.5% = 3.5% for up to $50,000
• BC + 0.75% = 2.75% for $50,000 to $99,999
• BC + 0% = 2% for $100,000 to $249,999
• 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.

Due to the recent bear market, I harvested a huge amount of capital losses (six-digit figure) which I can use to offset against capital gains and income in future years. The offset against capital gains is uncapped, but that against income is capped at $3000 a year.

With that in mind, investments that primarily throw off capital gains have become much more attractive to me (since my previously harvested tax-losses can be used to completely offset against these distributions, i.e. essentially tax-free). There are however very few investments that intrinsically throw off capital gains rather than dividends. (Note: Funds that actively turn over their portfolio, hereby producing capital gains, do not count.)

Nevertheless, there is a class of investments that do intrinsically produce capital gains. These are timber REITs. Generally, the dividends that timber REITs distribute are considered as long-term capital gains, instead of the more common dividend income distributed by general REITs.

The three most common timber REITs, all of which only produced distributions that were classified as capital-gains last year, are

• Potlatch Corporation (PCH).  Current dividend 9.3%.
• Plum Creek Timer (PCL). Current dividend 5.9%.
• Rayonier Inc. (RYN). Current divident 6.8%.

I always held an interest in timber investing. Several years ago, I had invested in PCL for a while before forgoing it. Given the new background scenario, I tweaked my portfolio last month to allocate a small portion into the above three timber REITs. (Disclaimer: Please do your own due diligence if you want to invest in the above securities.)

I shall not elaborate on the pros and cons of timber investing in this post. Instead, I shall leave the links to various discussions / resources on timber investing:

Introduction to investing in timber securities
Timber ETFs…Without the Timber?
Finding the Perfect Dividend Stock
Timber Investing: My articles on ETFs and REITs
Timber for the Individual Investor

Earlier last month, I decided to apply for Bank of Internet’s High Yield Savings account. With a name called “Bank of Internet”, one would expect that the application would take place at “internet” speeds. Unfortunately, my experience is quite the opposite. As far as the speed of processing is concerned, this application seems to take place at a historic dial-up speed rather than the broadband that everyone else are using.

Here’s the timeline: