(Disclosure: Some of the links below may be affiliate links. For more information, read my disclosure.)
Having decided to start investing in Exchange Traded Funds (ETFs), I needed a broker account. I decided to open an account on DEGIRO. In this post, I am going to go over the reasons for this choice and over how to open a broker account on DEGIRO.
After reading a lot about funds and low-cost index funds in particular and the inefficiency of most actively managed funds, I decided I will stop giving my money to fund managers. Therefore, I decided to start investing in passive index funds and not active funds. Moreover, I also decided to only focus on no-load funds. Currently, I was investing with PostFinance funds, but the Total Expense Ratio (TER) of these funds is high and PostFinance is charging a 0.5% percent load on each buy of funds.
Since we do not have access to excellent mutual funds such as Vanguard funds here, I decided to invest in Exchange Traded Fund (ETF) versions of the funds. This means I need a broker to invest. I looked at the trading offer of PostFinance but it is insanely expensive. Therefore I decided to find a new broker with significantly lower fees.
The links to DEGIRO are affiliate links. If you use them to create an account, you will receive 20 CHF in transaction credits and I will also receive 20 CHF.
Choosing a broker
The first thing I had to do was to choose a broker. There are really a lot of options. 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
- The price per year for your investing style. Check the price of each order you are going to use and make an estimate per month and per year.
- The ease of use. You are going to use it regularly, you want it to be simple.
- The security of the broker
- The reputation of the broker.
Personally, 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 strong 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:
Swissquote is my favorite Swiss broker. But looking at the commission fees and the custodian fees, it cannot compare to the other twos. Interactive Brokers is a very popular broker with very good fees and an excellent reputation. DEGIRO is a younger broker with outstandingly low fees. I have struggled quite 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 really working on improving their system. The 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! This was also a very important factor for me to lower the costs.
Opening an account on DEGIRO
Therefore, I just opened an online DEGIRO account. The process is quite simple. You need to fill out a bunch of personal information. Then, you need to activate your account from your mail. And then again answer a bunch of questions about you and accept the conditions.
There is a very important step here! You can select which kind of account you want. There are two types of account: Standard and Custody. The default option is the standard account. In the standard account, DEGIRO can loan your securities. Personally, I cannot accept this. On the other hand, the Custody account means the securities are held separately and cannot be loaned to third parties.
DEGIRO Account Types
There are a few disadvantages of having a custody account:
- You cannot trade short. This should not be an issue for passive investors.
- You do not have access to credit or buying on margin. This should not be an issue unless you really want 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 3% of the dividend you get. This is a bit high as your portfolio grow. 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.
I recommend the custody account. But 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 standard account. When they ask if you accept your securities to be loaned, you can say you want a custody account instead. This is what I did.
Finalize your DEGIRO account
Then, you need to make the first deposit to validate your account number. You can either make it instant with Sofort or make a regular bank deposited. I chose to deposit 100 CHF with instant deposit.
Finally, your account is ready. If you do it, I strongly recommend you to turn-on two-step verification. This can be done with a Google Authenticator.
Creating an account at DEGIRO 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 really straightforward and fast.
If you want to transfer more money, later on, it will take more time for the money 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, another great broker.
What do you think about DEGIRO? Which broker do you use?