The Best Brokerage Margin Accounts. The Lowest Margin Rates in 2021

Online brokers lowest margin rate accounts. Current best margin rates. Compare discount stock brokers margin interest rates.

Broker Margin Rates

Interest rates in the United States have been at the historic lows for a number of years now. While some online brokers provide their customers an opportunity to take advantage of this unique environment by offering low margin interest rates, others are still charging an arm and a leg for lending money to investors and traders. Below we are listing current margin interest rates of the major U.S. online brokerage companies for readers to compare.

Brokers With Best Margin Rates

Some of the lowest margin rates are at M1 Finance of only 3.5% on all balances. Even lower, 2% rates are available to M1 Plus members. M1 Finance is a very unique and interesting brokerage company unlike any other in the list below. It offers completely free investing but you cannot use them for active trading because trades are only executed 1 or 2 times per day. You could learn more about the firm in M1 Finance review.

Robinhood has recently become the second best broker for margin borrowing charging 2.5% on all margin balances.

As you can see below, Interactive Brokers offers the third lowest margin interest rates of just 2.6% on all balances in its IBKR Lite pricing plan which comes with $0 commissions on stocks and ETFs. The rates are even lower in IBKR Pro pricing plan (1.59% for up to $100K balance) but that plan comes with trading commissions and inactivity fee that nobody now wants to pay.

There are a few points that prospective customers thinking about opening an account at IB should keep in mind. First, Interactive Brokers wants as customers only very experienced traders and doesn't like dealing with beginners: minimum two years of experience in trading and account management are actually some of the requirements for opening an account at the firm. Second, there are monthly charges for live streaming quotes. And last, margin calls at the company are instant and merciless. Unlike many other brokers, in case of margin call there is no time to add funds to your account to avoid position liquidation and possibly even loosing all your money. You can read more about the broker in Interactive Brokers review.

Brokerage Margin Rates Comparison Chart

Broker $0 - $4,999 $5,000 - $9,999 $10,000 - $24,999 $25,000 - $49,999 $50,000 - $99,999 $100,000 - $249,999 $250,000 - $499,999 $500,000 - $999,999 above $1,000,000
M1 Finance Plus 2% 2% 2% 2% 2% 2% 2% 2% 2%
Robinhood 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Interactive Brokers 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6%
M1 Finance 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Webull 6.99% 6.99% 6.99% 6.49% 6.49% 5.99% 5.99% 5.49% 4.49%
Ally Invest 7.75% 7.75% 7.75% 7.50% 6.75% 5.50% 4.50% 4.00% 3.25%
TastyWorks 8.00% 8.00% 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 5.00%
Fidelity 8.325% 8.325% 7.825% 6.875% 6.825% 6.825% 6.575% 4.250% 4.000%
Charles Schwab 8.325% 8.325% 8.325% 7.825% 6.875% 6.825% 6.575% 6.575% 6.575%
Vanguard 8.50% 8.50% 8.50% 8.00% 7.5% 7.00% 6.50% 5.50% 5.25%
Merrill Edge 8.625% 8.625% 8.625% 7.500% 7.500% 7.000% 6.500% 6.500% 6.000%
Firstrade 8.75% 8.50% 8.25% 8.25% 7.75% 7.25% 7.00% 5.25% 4.50%
Etrade 8.95% 8.95% 8.70% 8.45% 7.95% 7.45% 6.95% 6.45% 5.45%
Wellstrade 9.00% 9.00% 9.00% 9.50% 8.00% 7.50% 7.00% 6.50% 6.00%
TD Ameritrade 9.50% 9.50% 9.25% 9.00% 8.00% 7.75% 7.50% 7.00% 7.00%
TradeStation 9.50% 9.50% 9.50% 9.50% 8.75% 8.75% 8.75% 5.50% 5.50%
Sogotrade 9.75% 9.75% 8.75% 8.75% 7.75% 6.50% 6.00% 5.50% 5.00%

Brokerage Reviews

Low margin interest rates, while important for trading, should not be the only deciding factor when choosing a brokerage firm. Make sure to read brokerage reviews containing lots of useful information before opening any brokerage account.

Overview of Brokerage Margin Rates

A normal brokerage account is called a cash account, because securities are purchased with a free cash balance. It’s also possible to buy securities using a loan from the brokerage house. To do this you need a margin account, which carries unique characteristics, in addition to the obvious advantage of not having to pay for securities.

How Margin Works

Brokerage accounts by their very nature have collateral sitting in them. Securities are types of assets, and these assets have value. The value can fluctuate on a day-to-day basis, but the investments are worth something. Oftentimes, the amount is quite high. So broker-dealers came up with an ingenious financial service: allow clients to use these assets as collateral for loans, just as a home or a car is used as collateral in an auto loan or mortgage.

The major plus with this service is the ability to buy securities without paying for them. Say for example that you have $5,000 in IBM stock sitting in your trading account. You can borrow this amount to purchase more shares or another security. So you would have $10,000 worth of investments in your account, although you have only paid for half of them.

The drawback of this system is that the broker-dealer charges interest on the $5,000 loan. The percentage varies from brokerage firm to brokerage firm, just as interest rates vary from bank to bank. After all, the margin loan is a type of loan. Interactive Brokers consistently offers margin rates below 3%, while WellsTrade customers might pay 9% or even higher.

Other Benefits of Brokerage Margin Accounts

Besides the ability to purchase a position long-term in a margin account, the ability to borrow has other uses. For instance, say you were interested in a particular stock, but weren’t sure if the price was going to be low enough today to make a purchase. You would need to transfer $3,000 into your account for the anticipated purchase if you had a cash account.

If you have a margin account with $3,000 worth of investments already in it, you don’t need to make a deposit of funds. You can wait to see where the stock’s price is at when the market opens; if the stock is low and you decide you want to buy, you can submit an order; and if it fills, make the transfer of funds then. The broker will only assess interest on the days before the funds arrive. A 7% rate on a $3,000 loan for two days only costs $1.15, a small price for a convenient service.

Most brokers don’t charge anything extra for opening a margin account instead of a cash account, although a margin application is more likely to result in a hard inquiry on your credit report, because it is a loan application.

Industry Regulation of Margin Accounts

Under FINRA regulations, margin cannot be used, even in a margin account, unless there is at least $2,000 worth of assets (cash or securities or both) in the account.

The Federal Reserve Board restricts the leverage of borrowing to no more than 50% of an account’s value. So if you want to borrow $8,000, you must have another $8,000 of marginable securities already in your account. This is called initial margin. The total amount in this situation would be $16,000, half of which is borrowed. The Fed allows broker-dealers to increase the 50% requirement, but they can’t lower it.

Marginable securities are stocks, bonds, ETF’s, mutual funds, and other assets that are eligible to be borrowed or purchased on margin. Not all securities are marginable.

After you purchase a stock on margin, you move from initial margin to maintenance margin. Instead of a 50% requirement, FINRA enforces a lower 25% level at this point. The regulation stipulates that you must have at least one fourth the value of a borrowed security in other assets. So if a borrowed stock is worth $4,000, you must have at least $1,000 in a mutual fund that is marginable, as an example. Brokerage firms can also increase this 25% requirement.

Best Margin Rates

Cases Where a Margin Account Is Required

In some situations, U.S. regulations require an investment account to be a margin account. For example, in order to short stocks, an account must have margin privileges. You’re borrowing stock in this situation, so margin is required. Complex option strategies, such as selling naked put contracts, also require a margin account.

Hazards of Margin Accounts

The first risk in a margin account is the dreaded margin call. If your account balance falls below the required maintenance level, your broker will literally call you and tell you to deposit more cash or securities in order to move the maintenance level above the firm’s minimum requirement. If you can’t do this, the broker has the legal right to sell shares of the borrowed security or securities in your account without your permission. Doing so will bring the maintenance level in your account back above the minimum level.

The second hazard is the accumulation of interest, which will detract from any market gains. If you maintain a borrowed position over a long period of time, the security will cost money just to hold. If your broker charges 6.5% interest, then the borrowed stock has to go up 6.5% per year just to break even, not counting any commissions.

Because margin involves leverage, i.e., trading with borrowed funds, the percent gains and losses are magnified. You pay little or nothing to buy a stock. If it goes up $500, the percent gain can be enormous compared to the percent gain experienced in a cash account.

Best Margin Rates Brokers Summary

Low rates margin accounts provide many benefits that cash accounts don’t offer. But make sure you read through your broker’s margin disclosure statement completely, as many caveats could be there. For your convenience, our Broker Lowest Margin Rates comparison chart above provides current margin interest rates for all leading U.S. investing firms on the market.