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Interactive Brokers is an excellent broker from the United States. It is known for its cheap fees and its unique range of offered investment products. It is being used by many personal finance bloggers, for instance.
It is currently the best broker that allows access to U.S. ETFs. And U.S. ETFs are the most efficient ETFs for Swiss investors.
In this guide, I go over the details of how to open an Interactive Brokers account. It is not very difficult, but there are a few things you need to know before you start your application. And I also teach you how to optimize your account to save money!
So what is Interactive Brokers (IB)? IB is a brokerage firm from the United States. It was created in 1978 in New York, more than 40 years ago! IB is the largest brokerage firm in the United States and the leading foreign exchange (forex) broker. Interactive Brokers offers access to many instruments such as stocks, bonds, options, futures, futures options, and even more.
It is a very well-known broker with an excellent reputation. It is known to be cheap compared to its competitors. I have already compared IB and DEGIRO in the past. This comparison showed that it is even less expensive than DEGIRO, the broker I was using before.
An essential thing with IB is that, by default, they do not lend your shares to other people such as DEGIRO does by default. You also have the option of lending shares, and you will get some of the money from the lending. But, you have the choice, which is good!
If you want more information on IB, read my review of Interactive Brokers.
Why open an IB account?
So, why did I open an IB account? It is currently the best broker available to Swiss investors.
There are reasons to prefer Interactive Brokers over other brokers.
- They offer access to U.S. ETFs to Swiss investors, while many brokers are not.
- They have excellent prices.
- They offer access to many investing instruments.
- They offer foreign exchanges at an excellent price.
For the story, I had a DEGIRO broker account before. But then, they cut access to U.S. ETFs even though it was not necessary. And they had very poor communication in the process. I found them to be very unprofessional in that matter. So I decided to switch to IB that still has this access and is much more professional.
Finally, DEGIRO only accepts money from a single bank account. With IB, you can transfer money to your account from any bank account. Since I sometimes receive money in USD, this is important for me to transfer USD without costs.
And talking about USD, IB is much cheaper than DEGIRO at converting between currencies. So, in the long term, I will save a lot of money with IB.
So, let’s see how one can create an account on IB.
Create an Interactive Brokers account
First, prepare some time in front of you. The account creation process on Interactive Brokers is not difficult, but it will take some time. You will need to answer a few questions, and you will need to wait a day for your account to be funded.
It is important to know that Interactive Brokers has several entities in Europe. The main entity is IB UK, but there is one in Luxembourg and one in Ireland for instance. For Swiss investors, the best entity is IB UK, because they offer access to a Swiss IBAN and give you access to US ETFs. For European investors, it does not make much of a difference.
First, you can go to the account creation page and click on “Start Application for Individual, Joint, and Retirement Accounts”. I needed an Individual account, but maybe you will need a type such as Joint if you plan to do it for you and your spouse. The procedure should be mostly the same, but I never tried other accounts than the Individual.
On the first page, you will need to enter your email, a user name, and your password for the account. Make sure to choose a good password and user name. I would recommend making your password at least 20 characters long. A long password is essential to secure your online accounts! Make sure to remember it correctly as well!
You also need to enter your country of residence. If your country of legal residence is different, you also need to enter it. You can then confirm the first page.
At this point, they will send you an email to confirm your email address. Just check your mail and choose to continue the application.
On the second page, you will have to set your account type. I set to Individual for my needs. You can check the kinds of accounts to make sure you choose the one according to your needs. But 99% of people will want an Individual account.
Then, you will have to set the general kind of personal information. There is nothing special here, only the thing you are used to entering on each website. You will have to set your addresses as well. Be aware that since this will be related to your taxes in the end, it is essential to enter them correctly. You will also need to enter a valid phone number. This phone number will be used for authentication, so once again, be sure to enter it correctly.
IB has several types of accounts. You will need to select the account type you want. The primary type of account is a Cash account. A cash account is the account type you probably need. It means you need to have the money before each trade. There are also Margin accounts. Margin means you can use leverage for investing with money you do not have. Unless you know what you are doing, I highly recommend going for a Cash account.
Another thing you need to configure when you create an IB account is the base currency of your account. I make most of my payments in Swiss Francs (CHF), and I live in Switzerland. Therefore I went with CHF as my base currency. You can always convert money from your base currency to any other currency. The base currency only matters for the display in the interface. If you choose CHF, you can still transfer USD and buy shares in EUR, for instance.
If you transfer CHF, you will be warned about the negative interest rate on CHF balances. Currently, there is a negative interest only on balances higher than 100’000 CHF. You can get the actual negative interest rate and limit here.
Now, you will also have to set up three security questions. You will need these questions if you ever need to recover your account. This procedure is, once again, a standard procedure. Make sure you choose questions from which the answer is not ambiguous (but not easy to find out)!
After this, you need to answers many questions about your finances.
You need to set how much your net worth is and how much income you have. You also need to say what your objectives are for your investments. For instance, you may want to invest in appreciation of capital or for fixed income. All this information is here for regulatory reasons. I would advise you to answer them with honesty simply.
You also need to set which instruments you need to invest in. For instance, if you want to invest and Stocks and Bonds, you need to select these options. I only selected stocks. There are many more options like Stocks, Bonds, Options, and Futures. You also need to select in which country (stock market exchange) you want to invest.
You also need to confirm your phone number with a code.
At this point, you will have to agree to all the rules that IB has for trading. Ideally, you may want to read them. But, you probably will not!
If you want, you can also join the Stock Yield Enhancement Program. This program will allow IB to lend your shares to other people. With that, you will receive half of the interest of the lending. Of course, there is a slight risk to that, and you may also not be able to sell your shares when you want or need to. I did not agree with that. But that may be something I will consider in the future.
At this point, Interactive Brokers will want to get proof of your identification. For this, you can upload a driving license, an ID card, a passport, or an alien ID card for IB to confirm your identity. On the same page, you will also have to enter information about your tax status. You will also have to fill in information about your employer and your job occupation. Usually, you also need to submit something as proof of address. But for some reason, I was not able to complete this at this point when I created my account.
Fund your account
IB will fully activate your account once they receive funding.
You need to deposit the first amount of money for IB to validate your account. First, you need to declare how much money you will deposit. Then, IB will give you all the information necessary for the payment.
Make sure you properly copy the IBAN. With banking transactions, you should always double-check all banking information before you do a transfer. Since they have a bank account in Switzerland, the transfer will be free!
And do not forget to include the “Further Benefit to XXX” line! Otherwise, the money will not directly go to your account, and you will have to contact them to fix the issue. You will need to do that for all your future deposits to your Interactive Brokers account.
Finalize your account
After you have funded your account, there are still a few more things you can do.
First of all, you can configure the market data. You should set your market data status to non-professional. And you should check that you are not buying any market data. Unless you plan to day trade, you do not need any of this data. You do not want to pay for it.
You can also configure your mobile phone to use it as Two-Factor Authentication (2FA). One excellent thing is that you have to use two-factor, you have no choice. It is great. 2FA is an essential part of online security. First, you need to install IBRK Mobile on your phone. This application is available for Android and iOS.
Once you installed the application, you can register the application as two-factor for your account. You will have to log in with your user and password. You need to enter the code you received by SMS. Finally, you can then choose a PIN for your future two-factor authentication. Make sure to remember that PIN since you will have to use it for each of your connections to Interactive Brokers.
If you do not know about 2FA and why it is necessary, read my article about online personal finance and security.
Wait for your account
At this point, you only need to wait for IB to create and fund your account.
It should not take too long. For me, it only took one day for my account to be created and funded. It is quite fast. The next day, I could directly make my first trade.
Finalize your account
Now that you have access to your account, there are two more things to finalize in your account.
The first thing that remains at this point is to configure the Pricing System. I recommend you use the Tiered Pricing system. IB is cheaper than DEGIRO when you use the Tiered Pricing system. You can make the change in your Account Settings. If you prefer the more predictable Fixed Pricing, you can also opt for it.
Here are my settings just before I made the change to Tiered pricing:
The second thing applies if you are a Swiss investor and will invest in U.S. ETFs. In that case, you need to fill the W8-BEN form. That is fairly simple. You can go into your Account Settings. Then, you need to click the (i) blue button next to your name below Profiles. Then, you can click on “Update Tax Forms”. They will then take you to the process, and you will have the choice of filling the W8-BEN tax form. This will halve the dividend withholding from your American stocks and ETFs. This is very important if you want to profit from the great tax efficiency of U.S. ETFs.
I have been told by some people that it sometimes takes about one day for the account currency to be taken into account. In the meantime, you may see some numbers in other currencies (likely GBP). You just have to wait one day and the issue should go away.
The procedure is now complete! If you followed this guide, you now have an Interactive Brokers account.
At least for now, we have access to U.S. Exchange Traded Funds such as VT, which makes the most significant part of my portfolio.
I have now been using IB for almost two years. And I am delighted with IB. Interactive Brokers is the best broker available to Swiss investors.
The next step is now to buy an ETF from Interactive Brokers. It is fairly simple and only takes a little time.
What do you think about Interactive Brokers? Do you already have an account? If not, which broker are you using?