Just negotiated a 1.25% margin loan rate at Fidelity!

[Kl285528]

Just a heads up posting. If you are looking for a margin loan, be sure and try to negotiate with your current brokers. We have funds at Fidelity and Vanguard, as well as at Interactive Brokers (IBKR). Could not get enough things transferred to IBKR to allow me to borrow enough to complete a property purchase I wanted to make. So, I decided to start rate shopping! Vanguard had no interest in negotiating their margin rates. Fidelity, on the other hand, decided to play ball. I had read about them negotiating their margin rates over on Bogleheads. After a number of calls and me being persistent, they offered 1.25%, and would drop that to 1.11% if I moved $1M over to Fidelity. Wound up taking the 1.25%. Oh, and borrowed amount was around 515K.

[Gin1984]

Wow, that's amazing.  I never considered doing that.  Who did you talk to there to be able to negotiate?

[Kl285528]

I just called in and told them what I wanted to do, for how much and for what purpose, and also quoted IBKR blended rate for that amount of loan - I think it was 1.177%. I also mentioned that I had other investments at Vanguard, etc. (implying I could move more money to Fidelity in the future). I had already set up a margin loan online with Fidelity prior to these conversations. I just called into the main number and kept asking for someone to speak with about margin loans.

[cool7hand]

Sweet!

[MustacheAndaHalf]

I had read about them negotiating their margin rates over on Bogleheads. After a number of calls and me being persistent, they offered 1.25%, and would drop that to 1.11% if I moved $1M over to Fidelity. Wound up taking the 1.25%. Oh, and borrowed amount was around 515K.

At Interactive Brokers, $415k of that loan costs 1.08% (the first $100k is at 1.58%).  Can you use that to negotiate?
https://www.interactivebrokers.com/en/trading/margin-rates.php

I thought IBKR could charge lower margin rates because they actively monitored portfolios, and acted immediately if assets neared the margin loan amount.  I wonder why Fidelity is willing to accept margin loans at rates so close to IBKR's.

[BicycleB]

I had read about them negotiating their margin rates over on Bogleheads. After a number of calls and me being persistent, they offered 1.25%, and would drop that to 1.11% if I moved $1M over to Fidelity. Wound up taking the 1.25%. Oh, and borrowed amount was around 515K.

At Interactive Brokers, $415k of that loan costs 1.08% (the first $100k is at 1.58%).  Can you use that to negotiate?
https://www.interactivebrokers.com/en/trading/margin-rates.php

I thought IBKR could charge lower margin rates because they actively monitored portfolios, and acted immediately if assets neared the margin loan amount.  I wonder why Fidelity is willing to accept margin loans at rates so close to IBKR's.

Maybe they're in a push to expand business, and part of their current strategy is to offer distinctly low prices for certains services?

I just called in and told them what I wanted to do, for how much and for what purpose, and also quoted IBKR blended rate for that amount of loan - I think it was 1.177%. I also mentioned that I had other investments at Vanguard, etc. (implying I could move more money to Fidelity in the future). I had already set up a margin loan online with Fidelity prior to these conversations. I just called into the main number and kept asking for someone to speak with about margin loans.

Awesome, @Kl285528! Thanks for posting.

Are you going to get a mortgage on the property later? Or just keep holding the margin loan and hope you never have a margin call?

[nalor511]

Box spread interest is a capital loss while margin interest is not easily or usefully deductible for most

[Kl285528]

Yeah, I keep wondering why other brokerages don't get really competitive with their margin loan rates. Looks like a virtually risk free loan for them. BicycleB, I will likely keep this in place for a while and see how it goes. No current plans to put a mortgage on it. Should not be getting a margin call, because I did not borrow really close to the margin limit, so alot would have to go very wrong for me to get a margin call. Nalor511, thanks for the comment about box spread interest - I want to look into that to understand that better.

[ChpBstrd]

1) I'm hearing a lot about retail investors negotiating margin rates lower and going six-figures into margin, and it makes me wonder if this represents excessive risk-taking by the brokerages (i.e. like 1928). Presumably, automated liquidation of accounts reduces the risk to brokerages by limiting the span of time between margin call and asset liquidation. All the brokerages have to do is hedge the between-day move, to cover them for example if I am a penny away from margin call at the close on Monday, and then the market drops 5% at the open on Tues. How are they doing so? Are they buying options or swaps? Doing anything?

2) If all the brokerages are establishing automated margin call / liquidation software, in an attempt to control risk while simultaneously using near-zero margin rates to attract high roller clients, then doesn't that set us up for another 1987-style flash crash when all the automated margin calls try to liquidate at once? The incentive for brokers is still to liquidate right before the circuit breakers flip. According to FINRA, the use of margin is rocketing skyward: https://www.finra.org/investors/learn-to-invest/advanced-investing/margin-statistics

3) What does the average retail investor do with a $500,000 credit line at 1.25%? Go 100% VTI? Go 100% GME? I know what I would do, which is probably very different than the average investor: I'd set up options-hedged positions with small possible losses and small possible gains, making forced liquidation impossible. But the overall risk picture has a lot more to do with how the average retail investor uses their margin. I found this survey from 2020 which suggests margin accounts would be using leverage to go long equities and attempt to time the market.  https://theharrispoll.com/portfolio-strategy-shifts-during-covid-19/

4) How much of the massive 25% stock price runup in 2021 so far was the result of margin demand? If lots of investors are adding lots of margin as the FINRA stats suggest, that creates new demand for shares. How much can share prices fall if all these leveraged investors suddenly see something that makes them go risk-off?

[MustacheAndaHalf]

2) If all the brokerages are establishing automated margin call / liquidation software, in an attempt to control risk while simultaneously using near-zero margin rates to attract high roller clients, then doesn't that set us up for another 1987-style flash crash when all the automated margin calls try to liquidate at once? The incentive for brokers is still to liquidate right before the circuit breakers flip. According to FINRA, the use of margin is rocketing skyward: https://www.finra.org/investors/learn-to-invest/advanced-investing/margin-statistics

The latest data is from Oct 2021, so to compare 12 months, we'd need to compare to each past October.  There's now $935 billion margin loan balances owed, a $277 billion increase in the past 12 months.

Oct 2021: +42%
Oct 2020: +19%
Oct 2019: -9%
Oct 2018: unchanged
Oct 2017: +16%
Oct 2016: +2%
Oct 2015: +4%

Right now, total stock market ETFs are doing extremely well.  Maybe people are chasing stock market returns: SPY (S&P 500 ETF) has a 1 year return of +38%.  Or maybe that's my bias, since I bought SPY calls about 10 months ago.

That is certainly a lot of money borrowed on margin.

[kenmoremmm]

I'm sure someone here can do the math, but I can't possibly believe ~$300B would do anything to influence the overall valuation or performance of the stock market. Looks like VTSAX is ~$1.3T. And then you consider different brokerages, different, but similar funds, individual stocks, etc....

[MustacheAndaHalf]

I'm sure someone here can do the math, but I can't possibly believe ~$300B would do anything to influence the overall valuation or performance of the stock market. Looks like VTSAX is ~$1.3T. And then you consider different brokerages, different, but similar funds, individual stocks, etc....

The other $658 billion is still there, so it's $935 billion total.  That's just margin loans, not futures contracts and other derivatives.  We don't have the full picture.

Back in May 2008, subprime loan defaults were around $300 billion.  It was a really good idea to pay attention to that $300 billion!  In that event, 100x leverage was hidden inside CDOs and synthetic CDOs, not in margin loans.
https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Subprime_mortgage_market

[Fru-Gal]

What is the minimum you could borrow from Fidelity (at a rate like that), do you know (say, $10 $50k)? I have taxable investments in Fidelity and Vanguard, but the bulk of my holdings in both is in 401k/IRA. Wondering if it could be a strategy to borrow against investments for your annual living expenses.

[boarder42]

i've got a LOC at etrade with 1% over SOFR not hard to negotiate if you have a reasonable amount of money with them  or the promise of future money.

[Kl285528]

not sure what Fidelity would offer, I got the impression that I teased them with enough possible assets to move to them to make it worthwhile

- Interactive Brokers would do 1.58% on $50,000, with no negotiation, with IBKR Pro - https://www.interactivebrokers.com/en/trading/margin-rates.php

[catccc]

Reviving this months old thread to ask some basic questions.

I understand margin loan rates can change without notice.  So the OP (or anyone else borrowing on margin) has no guarantee on how long a great rate will last.  Is that correct?  I suppose @boarder42 has some idea of where his LOC rate with etrade could end up since it is tied to a benchmark.  What about other margin loan rates?  Seems like this could be a pertinent question in the new environment of expected rate increases by the federal reserve.

[boarder42]

Reviving this months old thread to ask some basic questions.

I understand margin loan rates can change without notice.  So the OP (or anyone else borrowing on margin) has no guarantee on how long a great rate will last.  Is that correct?  I suppose @boarder42 has some idea of where his LOC rate with etrade could end up since it is tied to a benchmark.  What about other margin loan rates?  Seems like this could be a pertinent question in the new environment of expected rate increases by the federal reserve.

Almost all rates on margin are an adder on top of SOFR today. This includes ibkr and M1. Same with LOCs.  We're still talking an interest rate sub 5% at the end of these proposed hikes.