Is DEGIRO really cheaper than Interactive Brokers?

Posted on Categories Broker, ETF, Investment, Switzerland
Is DEGIRO really cheaper than Interactive Brokers?

You may have read that I am using DEGIRO has my broker. In fact, I chose DEGIRO mainly because of its very low fees. I am very satisfied with my experience with DEGIRO. I have not had a big problem since I started using it, about a year ago.

Interactive Brokers is also a very popular broker. It has been there for much longer than DEGIRO who is a very young broker. And it also has very low fees. When I chose DEGIRO over Interactive Brokers, I did it because I thought it was cheaper.

In this post, we are going to compare once again DEGIRO and Interactive Brokers. I am going to do the comparison in details including the two different account types of DEGIRO. In the default account of DEGIRO (Basic), your shares can be lent to other investors. This is not something that is done by default with Interactive Brokers. Therefore, my previous comparison was not very fair! This time, I am going to try to make it better.

DEGIRO

As a reminder, DEGIRO is a Dutch brokerage company. It is a quite new company. They only started in 2008 and only opened to the public in 2013. Even though DEGIRO is a Dutch broker, it is now available to many countries, including Switzerland. It is probably the cheapest broker in Europe, if not in the world. And they are growing really fast. If you want more information, you can take a look at my review of DEGIRO.

As mentioned several times on this blog, DEGIRO is my broker of choice. The reason is simple: it is the cheapest broker. Period.

We are going to compare the fees of the two brokers for an ETF investor. I will not do the comparison for other cases. Here are the fees of DEGIRO:

  • Buy a Swiss ETF: 2 EUR (2.3 CHF) + 0.038%
  • Buy a US ETF : 0 CHF

You are probably surprised by the 0 CHF fee for US ETF. This is because DEGIRO is offering a large free list including the Vanguard funds that I am using. For instance, you have the Vanguard S&P 500 and the Vanguard Total World (VT). If you do not use one of the free ETFs, you will pay exactly the same fee as for Swiss ETFs.

There is also a 2.5 EUR fee per year for each exchange on which you have positions. This is called the connectivity fee.

Now, there is something very important to take into consideration. There are two kinds of accounts: Basic or Custody. If you opt with the Basic account, you will not get any other fees. But DEGIRO will be able to lend your shares to other people. If you opt for the Custody account, DEGIRO cannot lend your shares. They are yours only. However, the Custody account has some extra fee. You will have to pay fees on dividends. You will pay 1 EUR + 3% of the dividend, with a maximum of 10% of the dividend.

Since I do not want my shares to be lent to anyone, I opted for the Custody account. At that time, I did not pay too much attention to this fee because I considered it, wrongly, negligible. In this post, I am are going to compare both account types.

Interactive Brokers

Interactive Brokers is a broker from the United States. It has been established forty years ago. And it is now the biggest online broker in the United States. It is used a lot in the personal finance community. It is a great broker also with very low fees. I do not have anything against Interactive Brokers. In fact, when I chose my broker, I almost went with IB but decided to go to DEGIRO to save on fees.

Here are the fees on IB:

  • Buy a Swiss ETF: 0.1% of the value with a minimum of 10 CHF
  • Buy a US ETF: 0.005 USD per share, with a minimum of 1 USD (1 CHF) and a maximum of 1% of the value.

This can easily be simplified to 10 CHF for a Swiss ETF and 1 CHF for a US ETF. For simple investors like us, we will hit the minimum in most cases.

But there is one more fee that we have to take into account. Indeed, Interactive Brokers has a custody fee of 10 USD (10 CHF) per month. If you do not spend 10 CHF in trade fees, you will pay 10 CHF this month minus the fees you already paid. This is a big deal for small investors like us. However, as soon as you reach 100’000 USD value, they waive this fee!

Something is very important for our comparison: By default, Interactive Brokers does not lend your shares to anyone.

Now, we have all the information we need to compare both brokers!

Starting investor

I am going to compare both brokers with several different scenarios. The first scenario is for a starting investor like me. Starting with 50’000 CHF (or USD, the same thing at the time of this writing) and investing 1000 per month. 1000 is invested in Swiss ETF every four months and the other months, invested in US ETF. The entire portfolio has around 25% Swiss stocks and 75% US stocks. It has a dividend yield of 1.8% which is around the average on the world stocks. And dividends are paid at the end of every quarter. These are reasonable assumptions for a starting investor. And for the sake of math, we are going to ignore that your portfolio can go up and down because of market valuations.

DEGIRO vs Interactive Brokers - Starting investor
DEGIRO vs Interactive Brokers – Starting investor

This gives us the following final fees:

  • DEGIRO Basic fees: 14 CHF
  • DEGIRO Custody Fees: 49 CHF
  • Interactive Brokers: 120 CHF

DEGIRO is the clear winner here, as expected. But what this is also showing is that DEGIRO custody fees are not negligible. I was thinking it was not so expensive as that. I was thinking that 3% of the dividends was not a lot. But it is a lot more than I thought. And this is for a very small portfolio!

Let’s see what happens if you invest 3000 CHF per month:

DEGIRO vs Interactive Brokers for starting Investor
DEGIRO vs Interactive Brokers for starting Investor

We arrive at the following fees:

  • DEGIRO Basic fees: 16 CHF
  • DEGIRO Custody Fees: 59 CHF
  • Interactive Brokers: 120 CHF

It is interesting that DEGIRO fees went up 2 CHF while DEGIRO Custody Fees went up by 10 CHF! And Interactive Brokers fees did not move which is logical since the custody fees act as a minimum fee.

For a starting investor, with less than 100’000 CHF in his account, DEGIRO is much cheaper than Interactive Brokers. Even DEGIRO Custody is cheaper than IB.

Standard Investor

Let’s now explore the case with a bit more money. We still have the same pattern of investment. But the invested value starts at 100’000 CHF and 2000 CHF are invested each month.

DEGIRO vs Interactive Brokers - Standard Investor
DEGIRO vs Interactive Brokers – Standard Investor

If we do the calculation one more time, we find the following fees:

  • DEGIRO Basic fees: 15 CHF
  • DEGIRO Custody Fees: 81 CHF
  • Interactive Brokers: 39 CHF

This is very interesting! Interactive Brokers become much cheaper now that you do not have to pay custody fees! And it is cheaper than DEGIRO Custody. About twice cheaper! DEGIRO Basic remains very cheap, more than twice times cheaper than IB.

Let’s see with 5000 invested each month.

DEGIRO vs Interactive Brokers - Standard Investor 5000
DEGIRO vs Interactive Brokers – Standard Investor 5000

We find this time the following fees:

  • DEGIRO Basic fees: 19 CHF
  • DEGIRO Custody Fees: 95 CHF
  • Interactive Brokers: 39 CHF

Only DEGIRO fees changed. This is because we are still hitting the minimum fees for a transaction from Interactive Brokers.

For a standard investor with about 100’000 CHF of value invested, it is better to either go with DEGIRO Basic or Interactive Brokers. It depends if you want to take the risk of lending your shares.

Advanced Investor

We can now see what happens for an investor on the road the Financial Independence (FI). This investor has 500’000 CHF and is investing 5000 CHF each month.

DEGIRO vs Interactive Brokers - Advanced Investor
DEGIRO vs Interactive Brokers – Advanced Investor

The advanced investor must pay the following fees:

  • DEGIRO Basic fees: 19 CHF
  • DEGIRO Custody Fees: 313 CHF
  • Interactive Brokers: 39 CHF

DEGIRO Basic and Interactive Brokers fees did not change. But DEGIRO Custody fees have grown very high! With a high net worth, it is a very bad idea to use DEGIRO Custody.

Financially-Independent Investor

Let’s see the last example: An investor that reached FI at one million CHF. Let’s say that he can still invest 1000 CHF per month via a side hustle or some passive income.

DEGIRO vs Interactive Brokers - Financially Independent Investor
DEGIRO vs Interactive Brokers – Financially Independent Investor

The financially independent investor must pay the following fees each year:

  • DEGIRO Basic fees: 14 CHF
  • DEGIRO Custody Fees: 566 CHF
  • Interactive Brokers: 39 CHF

The results are pretty clear! The financially-independent investor will lose 561 CHF each year because of DEGIRO custody fees! Once again, DEGIRO Custody is a very bad choice for a large net worth. This is not an acceptable fee for someone who is financially independent. And taking the risk of your shares being lent when you are entirely dependent on these shares is probably not very reasonable either. So Interactive Brokers is probably the best option here.

Having two brokers?

We have seen that Interactive Brokers is really bad for a value of less than 100’000 CHF. And we have also seen that DEGIRO Custody is really bad for a large value. But DEGIRO Basic is really cheap.

Nothing prevents you from having two different brokers. You could have an Interactive Brokers account and a DEGIRO account (either Basic or Custody). Since IB is cheap for US positions but expensive for Swiss positions, the idea is to use DEGIRO for CH positions and IB for US positions. Obviously, this is not interesting if you less than 100’000 CHF. In that case, any DEGIRO account will do better than IB

I have done the computation for all the cases of the article:

  • Standard Investor (2000): 18 CHF with IB/Basic and 38 CHF with IB/Custody
  • Standard Investor (5000): 22 CHF with IB/Basic and 44 CHF with IB/Custody
  • Advanced Investor: 22 CHF with IB/Basic and 99 CHF with IB/Custody
  • Financially-Independent Investor: 17 with IB/Basic and 158 with IB/Custody

First of all, we see that using Custody account for CH positions is quickly becoming too expensive. However, if you are willing to risk the share lending of DEGIRO for your CH positions, this could be worth it to have a DEGIRO Basic account for your Swiss positions and an IB account for your US positions.

I think this is a really interesting solution. It is also a protection if one of the two brokers goes bankrupt. In most cases, you will get back your money. But it can take a long time. So if you have two brokers, you can still access the money from one while the other is in jeopardy.

For now, I am far from having 100’000 CHF on my portfolio. So I do not have that problem yet. But I am really thinking of moving my US portfolio to Interactive Brokers once it reaches 100’000 CHF. And also moving my CH portfolio to DEGIRO Basic account. I do not have to take the decision now. But I will think about it and take the decision before I reach that point.

Conclusion

There are a few important things about these two brokers. DEGIRO Custody is not as cheap as it seems and can easily end up being way more expensive than Interactive Brokers. As expected, Interactive Brokers is too expensive for small net worth because of its safe custody fees below 100K CHF. DEGIRO Basic is indeed the cheapest. But you take the risk of lending your shares.

The cheapest broker for you will depend on a few things:

  1. If you do not care that your shares can be lent to others. The answer is easy, you should use DEGIRO Basic
  2. If you do not want your shares to be lent and have less than 100’000 CHF. Once again, the answer is easy, you should use DEGIRO Custody account. Interactive Brokers is really too expensive for portfolio below 100’000 CHF.
  3. If you do not want your shares to be lent and have more than 100’000 CHF. In that case, you should go with Interactive Brokers
  4. If you do not want all your shares to be lent. But you can afford the risk on some of your shares. In that particular, you may want to consider using DEGIRO for your Swiss shares and Interactive Brokers for your US shares.

Somebody may think that it is not fair to compare DEGIRO Custody and Interactive Brokers (IB). Because DEGIRO Basic is cheaper, one should compare it against IB. But this is wrong. It is a fair comparison because neither of them is lending your shares. In fact, IB has an option to allow them to lend your shares. In which case, you are getting half of the benefits. That means that IB with this option will be even cheaper!

For now, I do not plan of changing Broker. I am still quite satisfied with DEGIRO. But when I will reach 100’000 of my US positions, I may consider switching them to Interactive Brokers. We will see about that. I still have a long way to go before that point.

What do you think? Do you prefer Interactive Brokers or DEGIRO? What broker do you use?

2 thoughts on “Is DEGIRO really cheaper than Interactive Brokers?”

  1. Good article. But you made the same “mistake” than MP on his blogs when he compared brokers.

    IB has even lower commissions fees if you use the Tiered Pricing Structure. It’s less predictable but usually cheaper than the Fixed rates. (Some on Mustachian Post talked about it, check on the forums).

    https://interactivebrokers.com/en/index.php?f=1590&p=stocks2

    I’m paying the minimum when I buy US stocks, aka USD 0.35. (Yes 35 cents, compared to the 20-50 bucks I would pay on swiss brokers, it’s literally 100x times cheaper!). That’s almost a third of what I would pay in Fixed tier. And since I mostly invest in the US and don’t invest in Switzerland except via my 3a, IB is far better in my case.

    I’m not sure people like to move of brokers when they have a big portfolio (>100k USD) especially in the FIRE community. Seeing all the posts on Mustachian Post with people stuck on other brokers and complaining about the fees of moving their portfolio to IB or something else or are afraid of too lazy to switch. IMO better do it right now and being done. Same with people having 3a stucked on some bad providers and aren’t willing or can’t switch “costlessly” to VIAC. You just have to accept to pay 10 USD (minus commissions fees you generated during the month) / month till you reach 100k. My Degiro account is empty and I won’t use it to invest, at least for now.

    You also have to ask yourself, how much swiss stocks allocation do you want compared to the rest of your US/World allocation ? The lower, the better it gets to have IB. The otherwise, on Degiro.

    1. Hi Cashflow,

      Thanks a lot for this information. I always thought the Tiered Pricing was only better when you had a lot of transactions. It seems I was wrong :(

      I am going to update the article with this information, but it will take me some time. I will inform you when I have finished the new conclusion ;)

      My allocation of Swiss stocks in my investment portfolio is 20% for now.
      I know that a lot of people do not like changing brokers/insurance/banks/etc. Most of the time, it’s by laziness I think.

      Thanks for stopping by and sorry for the mistake :)

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