DEGIRO vs Interactive Brokers Tiered for a Swiss Investor

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Mr. The Poor Swiss
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A few days ago, I posted a comparison between Interactive Brokers and DEGIRO. It turned out from this comparison that DEGIRO was always cheaper than Interactive Brokers.

While the comparison was fair, I made a small mistake. Indeed, one of my readers pointed out that I only considered the Fixed Pricing of Interactive Brokers. I forgot to take Tiered Pricing into account. Tiered Pricing is a much more complicated pricing system that Interactive Brokers offers. I thought that it was only an account for big traders. But it turns out it is not the case. Indeed, it may be cheaper in some cases.

I made two small mistakes. I also realized I did not take currency exchange into account. With these two mistakes, I thought it would be best to update my comparison to be fair. I do not want to present incomplete comparisons on this blog.

In this post, I am going to present this pricing system and compare once again the two brokers. Thanks a lot to cashfl0w for pointing out my mistake. Once again, I always welcome comments, mainly when they help me learn new things.

Investing involves risks of losses. Make sure you are aware of that before you start investing.

Interactive Brokers Tiered Pricing

In the first comparison of the two brokers, I described in detail the Fixed Pricing system. It is straightforward. There is a simple price for each exchange. You pay a base price based on the number of shares. There are a minimum and a maximum per trade as well. The minimum is critical since that is what we, simple investors, are ending up paying.

On the other hand, the Tiered Pricing system is much more complicated. You have to pay each fee separately. What you will pay will depend on which exchange you are trading. If you want to estimate your costs, you will need to do the estimation for each stock exchange you wish to use. The Safe Custody fees of 10 CHF per month are the same for the Tiered Pricing system and the Fixed Pricing.

For a United States ETF (NYSE), you will have to pay the following fees:

• Interactive Brokers commission: 0.0035 USD per share, with a minimum of 0.35 USD and a maximum of 1.0% of the trade
• Clearing Fees: 0.00020 USD per share
• Transaction Fees: 0.00130% of the value.
• NYSE Exchange Fees: USD 0.0030 per share

But there are a few twists. You only pay transaction fees when you sell something. It is excellent news for long-term investors that rarely sell anything! And secondly, you do not pay the clearing fee if the total amount is less than 0.35 USD. Even though you should end up paying 0.36 USD for most trades, you will only pay 0.35 USD.

For a Switzerland ETF (SIX), the fees are:

• Interactive Brokers Commission: 0.080% of the value, with a minimum of 1.50 CHF and a maximum of 49 CHF
• SWX (EBS) Exchange Fee: 1.50 CHF per order and 0.015% of trade value
• Trade Reporting Fee: 1 CHF
• Clearing Fee: 0.538 CHF
  

Trading on SIX is much more expensive than trading on NYSE. On the other hand, you have to pay for currency exchange fees.

As you can see, the Tiered Pricing system is much more complicated than the Fixed Pricing system. However, it can be cheaper than Fixed pricing in some cases. We are going to see in several examples if this can compare with DEGIRO prices or not.

Currency Exchange

Since I am paid in Swiss Francs (CHF) and investing about 75% in United States funds, I need to convert a lot of my Swiss Francs to United States Dollars (USD). In the previous post, I did not take exchange fees into account. This is something I am going to fix in the current comparison.

For most brokers, currency exchange is not free. In DEGIRO, you are going to pay 0.1% of the converted value for each exchange. It is the same for the two kinds of accounts of DEGIRO. In Interactive Brokers, you are going to pay a flat fee of 2 USD for each conversion. Once again, the price is the same for the Tiered and Fixed accounts.

Standard Investor

I am going to take the same scenarios as for the previous comparison. We are investing the same amount each month. Each fourth month, we are investing in a Swiss ETF. And all other months, we are investing in a United States ETF. Since our main currency is Swiss Francs, we have to pay currency exchange fees every time we invest in U.S. funds.

If you are interested in the Spreadsheets, I have shared it online: IB / DEGIRO Comparison Spreadsheet. Tell me if you got any questions regarding it.

We have already established that Interactive Brokers is expensive for a portfolio of less than 100’000 CHF. It is relatively easy to compute how much it will cost with a smaller portfolio. Unless you do a lot of trades, you will pay up the 120 CHF per year of custody fees. This is precisely the same for both pricing systems of Interactive Brokers.

The first investor example that we consider is starting with 100’000 USD and is investing 2000 USD per month. Here are the results in this scenario:

Which gives us a total for the four different accounts:

• DEGIRO Basic: 33 CHF
• DEGIRO Custody: 99 CHF
• Interactive Brokers Fixed: 57 CHF
• Interactive Brokers Tiered: 36 CHF

I am really surprised by the results. Interactive Brokers Tiered is significantly cheaper than the Fixed pricing. It is around 30% less expensive on that particular example. I am also surprised by the difference that the currency exchange fees make. It is significantly different from my previous calculations. Indeed, the Tiered account is now almost as cheap as DEGIRO Basic.

Let’s see what happens when we invest 5000 USD per month:

This gives us a total for the four different accounts:

• DEGIRO Basic: 63 CHF
• DEGIRO Custody: 140 CHF
• Interactive Brokers Fixed: 57 CHF
• Interactive Brokers Tiered: 37 CHF

It is interesting to see that Interactive Brokers Fixed account did not change at all. And the Tiered account only slightly increased. This is the advantage of fixed base costs. They are expensive with small amounts. But they are getting cheaper with more significant amounts. And it is especially interesting to note that Interactive Brokers is less expensive than DEGIRO! Both accounts are cheaper! I was not expecting this! The Tiered account is significantly cheaper than any DEGIRO account.

Advanced Investor

We can take an example with an investor that already has 500’000 USD and is investing 10’000 USD per month. This investor is getting closer to Financial Independence (FI).  Here are the fees that he is going to pay:

Which gives us the following yearly fees:

• DEGIRO Basic: 114 CHF
• DEGIRO Custody: 426 CHF
• Interactive Brokers Fixed: 57 CHF
• Interactive Brokers Tiered: 39 CHF

Once again, the costs of Interactive Brokers almost did not go up. On the other hand, DEGIRO fees went up quite a bit. Once again, both Interactive Brokers pricing systems are cheaper than DEGIRO.

Does it really matter?

Yes! Fees do matter! You should always minimize the fees. Do not forget that what you do not spend on fees is invested in your portfolio. And all these savings are compounding year after year! Over the long-term, this is a lot of money.

Let’s take the case of the standard investor. DEGIRO Basic and Interactive Brokers are the same fees here. Between DEGIRO Basic and Interactive Brokers Tiered, the investor can save 26 CHF per year. That means you are going to save 1800 CHF in about 30 years with a yearly return of 5%! And if you were using DEGIRO Custody, you could save 103 CHF per year. That is more than 7100 USD after 30 years of compound interest. This is more than a month of your expenses! You do not want to give all that money to your broker! You want to keep it!

Conclusion

I think that my comparison between the two brokers is now complete. This time, I included the Tiered Pricing of Interactive Brokers and the currency exchange fees for both brokers. I am hoping I did not miss anything this time.

This time, the conclusions are a bit different than before:

1. If you have more than 100’000 USD (or CHF), you should use Interactive Brokers with the Tiered Pricing system.
2. If you do not want your shares to be lent and have less than 100’000 CHF, you should use the DEGIRO Custody account. Interactive Brokers is too expensive for portfolio below 100’000 CHF.
3. If you do not mind your shares to be lent and have less than 100’000 CHF, you should use DEGIRO Basic account.

In my opinion, the safe custody fees of Interactive Brokers is their most significant disadvantage, by far. Without that, I would probably have directly have used them as my broker the first year. But they are cheaper than I thought. And DEGIRO is more expensive than I realized.

What does all this mean for me? In the last comparison of the two brokers, I have already established that DEGIRO Custody was too expensive. The fee on the dividends is more than I thought. My first step will be to see if I can switch from the Custody account to the Basic account. Once my portfolio reaches 100’000 CHF, I will have to consider switching to Interactive Brokers. If it is too difficult to change accounts at DEGIRO, I may also end up switching directly to Interactive Brokers.

Once again, thanks to Cashfl0w for pointing out my mistake! And for reviewing the current post! I have not yet updated the previous comparison. But I will do it before the end of the year.

If you are interested in Interactive Brokers, I wrote a Guide on Opening an Account on Interactive Brokers.

What about you? What is your favorite broker? Which broker have you used?