Financial Quickie: what’s the minimum amount that makes sense to start investing on Interactive Brokers?

Good morning newbie RIPvestors!

Today I want to answer to a question from our reader Mr Dip (which is not the same person of Mr DIP, guest poster from the past) on a recent post:

By the way, what would be the minimum you’d recommend someone start investing with on IB (considering their 10$/m fees for under 100k)?

Any value? 1k? 5k? 10k? Or wait until one has like 50k? At which point would be best and why?

Thanks so much.

I wanted to articulate a slightly longer answer than a simple comment (but I promise it will be a quickie!) so here I am.

I don’t have a quick answer, let’s explore the thing together.

For those who don’t know, Interactive Brokers is the broker I recommend and use since almost 3 years. I wrote an extensive user manual (IB 101) on this blog few months ago.

The elephant in the room is of course the IB 10 USD monthly fee if you don’t have at least 100k USD balance on your account.

Note: I’ll use USD as a reference currency for this article, but mind that at the time of writing (August 2018) USD and CHF are dancing around 1:1.

I’d divide wealth spectrum in zones:

1) <12k USD

if you have less than 12k USD to invest, I would not recommend you to invest using IB.

Your annual IB yearly custody fee would be 120 USD, which is 1% or more of your portfolio value. It’s definitely too much. Consider it as an extra fee on top of your ETFs TER. It’s roughly how much banks charge for their managed funds.

If you have less than 12k to invest I’d recommend other alternatives like:

  • Other brokers: some of them don’t charge a custody fee (but higher trade fees). Take a look at the MustachianPost collection of Swiss brokers alternative.
  • Roboadvisor: Truewealth, Swissquote, SaxoSelect… Roboadvisor advisory fees are in the 0.5-1% range (on top of ETFs’ TER). I don’t like them, but if you have a small amount and don’t plan to add much more quickly it may be your best option. More information on fintechnews.ch and moneyland.ch.
  • Other investment forms or just holding cash: p2p lending (meh), cryptos (no!)…

IB can be an option below 12k if you plan to invest more money soon, climbing up to next zones within few months. I also started with 10k just to try it out, then invested more than 100k a couple of months later 🙂

Another valid use of IB in this low range is day trading.

I strongly advocate against day trading, but if you want to try it out with limited amounts IB is awesome. Smart offer placement among dozens of stock exchanges, lowest spread, “cheap” live market data and an acceptable UI (once you learn how to use it).

In day trading your expenses are driven by trade fees and I bet you’ll never end up paying a custody fee since trade fees are deducted from custody fees.

Btw, if you want to explore day trading with IB (I don’t recommend day trading in general though), try first their paper trading platform, where you can experiment with a virtual portfolio. No real cash needed.

2) 12k – 24k USD

If you’re in this range, your annual custody fee with IB would be 0.5-1% of your portfolio. Now IB is getting as competitive as a roboadvisor with the added control you might want to have over your wealth. As I said in a previous post, don’t be ultra passive with your wealth: always keep an eye open while sleeping 😉

Plus, you get essentially free trades: trade fees are deducted from custody fees up to 10 USD/Mo and you should be able to manage your trades to never cross 10 USD/Mo.

Plus, you get free forex. IB is the best platform for currency conversion. I handle EUR, CHF and USD for my daily expenses and thanks to IB I convert among them almost for free and with a “half pip” spread. Best of the best.

I lean toward suggesting you not to use IB in this range though, but I would not consider it a clear mistake if you do.

0.5-1% extra TER is a lot in the long run, but if the alternative is not investing at all… then swallow it and open your IB account.

3) 24k – 50k USD

In this range your annual IB custody fee is in the 0.25-0.5% of your portfolio. Annoying but acceptable.

I lean toward recommending you to use IB in this range, but if you have other alternatives it’s not a crime to explore them.

4) 50k – 100k USD

You have some serious money and more than half the 100k threshold. Your annual IB custody fee is going to be less than 0.25% of your portfolio and the closer you get to the magic threshold the more exponentially easy it gets to reach it and stop paying custody fees for good.

I strongly recommend you to use IB in this range.

5)  >100k USD

You’re losing money if you’re not using IB in this range.

Right now, there’s no superior alternative outside US, and even those in US for taxable accounts are debatable.

I wholeheartedly recommend you to use IB above 100k USD.

The only issues worth considering is account safety. Things like “what happen if my broker fails?”, “Is my account insured?”, “does SIPC apply to my account?” and so on.

Maybe it’s worth opening a second account with a different broker once your investments reach a certain amount (500k?) but that’s outside the scope of this financial quickie!

In conclusion: I think the acceptability threshold is at around 24k USD. But I’d not ask you any question if yours is in the 12k-50k range.

Have a nice day 🙂

Since I can’t find a valid image for this post, here you have the cutest cat ever!

14 comments

  1. For smaller amounts another viable option are some kind of proxy companies, which provide access to IB, but with their own pricing scheme. Generally individual trades costs more, but there might not be minimum yearly spends, or it is much lower then 120USD. (example: CM-Equity, but they are not present in all eu countries).
    Second alternative, which I’m now considering for spreading the risk, is Degiro. I’m still researching it, but looks like a good alternative to IB.

  2. Hy MrRIP

    Thank you very much for this post. Unfortantly or not, i just opend an Account at IB, and i just invested 12k, it should be 20k at the end of the year and +/- 35k at the end of 2019. Is it worth now to change to Cornèr Trade? And maybe later open an Account at IB? If yes, should i sell and buy new ones or transfer my depot? I think… im taking the easy way hear and try to stay with IB. 🙂 Even if i pay more fees at the beginning, i mean i just took the BIG STEP in starting investing and saving money so…it is at least i started so i will pay the high fees this and next year ?
    What is your opinion?

    1. Hi Ricardo,
      As I said 12k is borderline and I would not have opened an account in your situation.
      But…
      1) you already opened it and invested. It would be costly and inefficient to close it now.
      2) You plan to grow to 20k by end of 2018 which is not bad, and planning to grow even more next year and enter the “ok zone”.

      I’d recommend you to stay with IB now.

      1. Hi MrRIP,

        Thank you for your response. Well, one more reason to keep saving and reach the goal of at least 24k! 🙂 Unfortnatly i’m not as frugalist ( saving 25% of Netto salary) and i just started investing… so that goal will maybe help the way i spend money

  3. Great post and thank you so much for taking the time to respond in detail. I highly appreciate it. I am close to the threshold you talk about (24k) to be able to invest, if I don’t count in the 6-month emergency fund. If I count it, I still have to wait until the end of the year. Either way, I guess it’s fine. Maybe Mr. Dip enters during a month that fits his name! (I know I know, just kidding!)

  4. Hi,

    Thanks for the helpful post. I have a basic question.

    Does the 100 KUSD figure refer to the minimum balance that you must maintain in your IB account (which may or may not be invested into stocks, ETFs, etc.) or does it refer to the amount which you must have invested at any point of time in stocks, ETFs, etc.?

    For e.g. I may have 60 KUSD in my IB account sitting in cash but only 45 KUSD invested in stocks, ETFs, etc.
    Or, I may have 110 KUSD sitting in my IB account in cash and 0 KUSD invested in stocks, ETFs, etc.
    In each of the above cases, will the 10 USD/m charge apply?

    Thanks and keep up the great work.

    1. Hy Sirob, welcome to retire in progress 🙂

      It says “Accounts whose Net Liquidation Value >= USD 100,000”, which means it doesn’t matter if you invest the money or keep cash or a mix of both 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *