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Having decided to start investing in Exchange Traded Funds (ETFs), I needed a broker account. I decided to open a DEGIRO account. In this post, I am going to go over the reasons for this choice and over how to open a DEGIRO account and start trading.
DEGIRO is a cheap broker for European people. It is well priced and offers a great choice of investment products.
I will only be investing in low-cost passive index Exchange Traded Funds (ETFs). So my choice of DEGIRO as a broker is highly tied to my investment strategy. It may not be the best choice for active investors.
Unfortunately, we do not have access to good passive funds in Switzerland, such as Vanguard. So we invest in ETFs instead. It means Swiss investors need a broker account to invest.
So, let’s see how to choose a broker and how to open a DEGIRO account.
Choosing a broker
The first thing you have to do is to choose a broker. Your broker will give you access to various stock exchanges. And from them, you will be able to buy and sell ETFs.
There are a lot of options for brokers. The choice will depend on your investing style, of course. You need to know in advance how often you are going to trade. You also need to know which stock exchanges you are going to invest in. Some stock exchanges are more expensive than others. And not all brokers offer the same price for each exchange.
The main points for comparing brokers should be:
- The availability of your products. You want to make sure you have access to all the ETFs you need for your portfolio.
- The price per year for your investing style. Check the fee for each order you are going to use and make an estimate per month and year. You want to spend as little money as possible on your broker.
- The ease of use. You are going to use it regularly, so you want it to be simple. But since you are not going to use it every day, this is not a deal-breaker.
- The security of the broker. You do not want to have issues because you are using an unsafe broker.
- The reputation of the broker. If there is anything shady about a broker, you should avoid it.
These are the main points that most people should use to compare brokers. Based on your situation, you may have different points for comparing them.
In the end, do not forget that choosing a broker is a personal choice.
I plan to invest once a month, maybe twice a month, but no more. I will follow a buy-and-hold strategy, meaning I will only sell if I need the money (long-term). If there is a significant imbalance in my portfolio, I may sell to rebalance it as well.
I have compared a lot of brokers, and three candidates have interested me:
- Interactive Brokers
Swissquote is my favorite Swiss broker. But looking at the commission fees and the custodian fees, it cannot compare to the other twos. There are plenty of other Swiss brokers. But they are all even more expensive than Swissquote. Honestly, Swiss brokers are pretty bad. They are all too expensive and have no advantage over DEGIRO.
Interactive Brokers is a top-rated broker with very low fees and an excellent reputation. DEGIRO is a younger broker with outstandingly low fees. I have struggled a lot to decide between those twos. But finally, I am going with DEGIRO. The fees are really low, and overall it seems alright. Moreover, even if there were some problems at the beginning, it seems they are working on improving their system.
Update: I have now switched to Interactive Brokers and I now recommend Interactive Broker instead of DEGIRO.
My two main reasons for choosing DEGIRO over Interactive Brokers were:
- No custodian fee! At Interactive Brokers, you have to pay 10 USD per month if you do not have at least 100’000 USD. Since my portfolio will be very small to start with, I did not want such fees.
- One free ETF per month! At DEGIRO, you have a list of free ETFs. Each month, you can trade one of these ETFs, in any direction (buy/sell), free! It was also a significant factor for me to lower the costs.
If you already know your portfolio, you can take a look a the DEGIRO list of Free ETFs.
DEGIRO Account Types
Before you open an account at DEGIRO, you need to know that there are several types of accounts.
There are two types of accounts: Basic and Custody. The default option is the Basic account. In the Basic account, DEGIRO can loan your securities to other users. This is how they can keep the fees low.
On the other hand, the Custody account means the securities are held separately, and they cannot lend them to third parties.
But, there are a few disadvantages of having a custody account:
- You cannot trade short. It should not be an issue for passive investors.
- You do not have access to credit or buying on margin. It should not be an issue unless you want to leverage.
- You cannot trade turbos, speeders, and sprinters. Once again, this should not be an issue.
- You have to pay if you want real-time prices
- You cannot trade derivatives
Overall, I do not think these limitations are a big deal for passive investors that are in for the long-term. But if you want to do some active trading on the side, it may not be enough for you.
And finally, you will be charged 1 EUR and 3% for each dividend you get. This is a bit high as your portfolio grows. If you got a yield of 2%, this fee is a 0.06% fee overall. Moreover, if you get only accumulating ETF, you should not have this issue.
If you do not want DEGIRO to lend your securities, you should opt for the Custody account. However, you need to be aware of the fees that you will be putting on your dividends. This fee is not negligible. For a large account, a Custody account can be several times more expensive than a Basic account.
I do not think the risk is high by lending your shares. When investors are borrowing shares, they are providing collateral. So this collateral will protect you. But there is an extra risk. You have to decide if you are willing to take it or not.
In the end, it is entirely up to you. If you do not want to pay the extra fees on dividends, then go for the Basic account. When they ask if you accept your securities to be loaned, you can say you want a custody account instead.
Open a DEGIRO account
It is now finally time to describe how to open a DEGIRO account. The process is straightforward.
First, you go to the DEGIRO website. And then, you use the big “Open An Account” green button on the top right. From, there you will have to fill standard information for an account:
- Email, username, and password
- Your address
Then, you need to activate your account from your mail. And then again answer a bunch of questions about you and accept the conditions.
During this process, you will have to choose the account type: Basic or Custody. You need to pay attention to this because you will not be able to change it afterward. I would like DEGIRO to make it possible to change the account type. But currently, you have to create a new account and transfer your shares (with a fee) if you ever want to change your account type.
Finalize your DEGIRO account
Then, you need to make the first deposit to validate your account number. You can either make it instant with SORFORT or make a regular bank transfer. I chose to deposit 100 CHF with an instant deposit (SOFORT).
Finally, your DEGIRO account is ready. Once you are there, I strongly recommend you to turn on two-step verification. You can use a Google Authenticator or any other authentication services. It is very important to improve the security of your online broker account.
Opening a DEGIRO account is very simple. With the instant deposit, you can get your account ready in less than one hour. You can then start trading directly. The procedure is straightforward and fast. It is easily the most simple broker account I have ever opened.
If you want to transfer more money, later on, it will take more time for the funds to reach your account. I think they are a bit slow for processing the money. Once the money reaches them, it can take more than one day for it to appear on your account. But wire transfers are still better than paying for instant deposits.
If you are interested, you can also read about Interactive Brokers, a broker even cheaper than DEGIRO.
What do you think about DEGIRO? Which broker do you use?