Best Margin Rates
If you’re looking for the best margin rates among U.S. brokerage firms, look no further. Our
list will show you who has the lowest margin rates—and who has the highest. Although your
instinct may be to go for the lowest rate, there are reasons not to choose a firm at the bottom
of the barrel. Let us explain.
Lowest Margin Rates Brokers
Brokerage houses with the lowest margin rates are not always the best choice. For example, the
absolute lowest rate currently available to investment accounts denominated in U.S. dollars is at
Interactive Brokers
with the IBKR Pro schedule. The interest rate starts (yes, starts) at 6.83%
and goes even lower for large debit balances. But the Pro pricing scheme charges commissions, so only
large-volume traders would really benefit from the plan.
You can
read more about the broker in the Interactive Brokers review and
IBKR Pro vs Lite pricing comparison.
And then there’s Robinhood,
which charges just 8% for all balances. Unlike Interactive Brokers,
there are no commissions to worry about. This rate available at Robinhood Cold account that costs
$5 per month and comes with lots of great features. In 2023, we named Robinhood
The Best Broker For Margin Account.
You could learn more about the firm in the
Robinhood Review.
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 |
|
IBKR Pro
|
6.83%
|
6.83%
|
6.83%
|
6.83%
|
6.83%
|
6.83%
|
6.83%
|
6.83%
|
6.83%
|
|
Robinhood Gold
|
8%
|
8%
|
8%
|
8%
|
8%
|
8%
|
8%
|
8%
|
8%
|
|
ZacksTrade
|
8.58%
|
8.58%
|
8.58%
|
8.58%
|
8.58%
|
8.08%
|
8.08%
|
8.08%
|
7.83%
|
|
Tradezero
|
9%
|
9%
|
9%
|
9%
|
9%
|
9%
|
9%
|
9%
|
9%
|
|
Tradier
|
9.25%
|
9.25%
|
9.25%
|
9.25%
|
9.25%
|
9.25%
|
9.25%
|
9.25%
|
9.25%
|
|
Webull
|
9.49%
|
9.49%
|
9.49%
|
8.99%
|
8.99%
|
8.99%
|
8.49%
|
7.99%
|
6.99%
|
|
Sofi
|
9.5%
|
9.5%
|
9.5%
|
9.5%
|
9.5%
|
9.5%
|
9.5%
|
9.5%
|
9.5%
|
|
Tastytrade
|
11%
|
11%
|
11%
|
10.5%
|
10%
|
9.5%
|
9%
|
8.5%
|
8%
|
|
Robinhood
|
12%
|
12%
|
12%
|
12%
|
12%
|
12%
|
12%
|
12%
|
12%
|
|
TIAA
|
12.375%
|
12.375%
|
11.875%
|
11.625%
|
11.375%
|
11.375%
|
11.375%
|
11.375%
|
11.375%
|
|
Citi
|
12.75%
|
12.75%
|
12.75%
|
12.25%
|
11.75%
|
11.25%
|
10.5%
|
9.75%
|
9.25%
|
|
Ally Invest
|
13%
|
13%
|
13%
|
12.75%
|
12%
|
10.75%
|
9.75%
|
9.25%
|
8.5%
|
|
TradeStation
|
13.5%
|
13.5%
|
13.5%
|
13.5%
|
12.5%
|
12.5%
|
12.5%
|
call
|
call
|
|
Fidelity
|
13.575%
|
13.575%
|
13.575%
|
13.075%
|
12.125%
|
12.125%
|
11.825%
|
9.55%
|
9.25%
|
|
Charles Schwab
|
13.575%
|
13.575%
|
13.575%
|
13.075%
|
13.075%
|
12.125%
|
12.075%
|
12.075%
|
11.825%
|
|
Firstrade
|
13.75%
|
13.75%
|
13.5%
|
13%
|
12.5%
|
12.25%
|
11.25%
|
11.25%
|
9.75%
|
|
Vanguard
|
13.75%
|
13.75%
|
13.75%
|
13.25%
|
12.75%
|
12.25%
|
11.75%
|
10.5%
|
call
|
|
Merrill Edge
|
13.88%
|
13.88%
|
13.88%
|
13.88%
|
13.88%
|
13.88%
|
13.88%
|
13.88%
|
13.88%
|
|
Etrade
|
14.2%
|
14.2%
|
13.95%
|
13.7%
|
13.2%
|
12.7%
|
12.2%
|
12.2%
|
12.2%
|
|
Wellstrade
|
14.25%
|
13.75%
|
13.25%
|
13%
|
12.25%
|
11.75%
|
11.75%
|
11.25%
|
11.25%
|
Awards
How Margin Works
Brokerage accounts by their very nature have collateral 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. Let's take
an example where you have $5,000 in IBM stock in your investing account. You can borrow this amount of
money to buy more shares or another stock. So you would have $10,000 worth of assets in your brokerage account, although you have only paid for half of them.
The drawback of this system is that the stockbroker charges interest on the $5,000 loan. The rate
varies from brokerage company to brokerage company, just as interest rates vary from bank to bank.
After all, the margin loan is a type of loan.
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 brokerage account for the upcoming 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.
All brokerages don’t have additional charges for opening a margin account instead of a cash account,
but a margin account application will most likely lead to a hard inquiry on your credit report,
since 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 will have to 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 says 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.
Cases Where a Margin Account Is Required
In some situations, U.S. regulations require a brokerage account to be a margin account. For example,
to short sell stocks, an account must have margin privileges. You are borrowing stock in this case,
so margin is required. Complex option strategies, such as selling naked put contracts, also need a margin account.
Hazards of Margin Accounts
The first risk of having a margin account is the dreaded margin call. If your account balance falls
below the required maintenance level, your brokerage firm will either email or literally call you
and ask you to deposit more cash or securities in order to move the maintenance level above the
company’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 margin account back above the minimum level.
The second problem is the accumulation of interest, which will subtract from any market gains. If you maintain a borrowed position over a long period of time, the security will cost a lot of 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 money, the percent losses and gains are magnified. You pay little or nothing to buy a stock. If it goes up $500, the percent gain can be huge compared to the percent gain accrued in a cash account.
Best Margin Rates Brokers Summary
Low rates margin accounts provide many advantages that cash accounts don’t offer. But make sure you read your brokerage’s margin disclosure
statement completely, since many caveats could be there. For your convenience, our Best Margin Rates comparison chart above offers current
margin interest rates for all leading U.S. investing firms on the market.
Updated on 8/2/2023.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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