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Thinking of moving to the UK at some point? Don’t miss my fully-updated Moving to the UK workshop, incorporating all the major changes from the latest Budget.
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Yesterday Interactive Brokers announced they were removing their inactivity fees. Here’s what that means for investors…
Cheap just got cheaper
Interactive Brokers is big and cheap. I use them myself – note I don’t have any affiliate relationship with them and don’t get money or perks for recommending them.
They used to charge $10 per month if you had less than $100k in your portfolio. These fees were confusing and some people considered them ‘expensive’ even though many other brokers charged more.
As of July those fees are gone, leading to less confusion and fewer reasons to avoid jumping in and getting started.
Great for beginners
IB has no minimum account requirements so you can get started with $1 if you really want. Now they have no ongoing platform, account or activity fees, you can start with a small amount of money to learn how investing works.
You don’t have to worry about your new little investment getting eaten up with fees if you can’t add to it for the next few months.
This is great for people who are focusing on building up their cash buffers or paying off expensive debt. You can jump into the stock market with a small amount and learn how it works, so that when your buffer or debt are done, you will be confident and able to go full steam ahead with investing.
Otherwise being an investor will seem far in the distance – not very motivating. You will finally pay off that credit card balance and have to spend time learning how the market works.
If you’re already set up on IB, you will be itching to pay off that debt so you can get started, and you will reach your saving goals much faster!
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The costs that remain
There are two main costs to investing that remain for most expats, as IB does not charge custody fees unlike SAXO and Swissquote.
1) Trading commissions. US expats can use the cheaper IBKR Lite account, but the rest of us need to avoid US stock exchanges for tax reasons, so we need IBKR Pro.
Trading on Pro is not free, though it’s not exactly expensive either. You’ll likely pay $5 for every $10k or less you invest. So investing $100 will cost you $5, $5000 will cost you $5 and $20k will cost you $10.
2) Transfer costs. Unfortunately, it costs money to send USD over to IB. GBP and EUR are cheaper, and they don’t accept minor currencies like dirhams and riyals.
it could easily cost you $30-50 every time you send money across, including foreign exchange spreads when changing currencies and correspondent banking fees to get the money over to the US.
These costs don’t matter so much when you are sending large amounts over $5k, but they are important when sending much less.
There are some clever ways round the fees, like sending AED to Revolut, converting to GBP cheaply, sending GBP to IB and then converting it to USD. But that’s complicated and it doesn’t always go smoothly.
Recommendations
So how does the lack of activity fees actually change things? Some scenarios:
You need to hit pause on investing. Great, your portfolio won’t get eroded by inactivity fees. Take as long as you need… though not too long, as you need to invest for your future!
You’re getting started but also need some spare cash. The cash buffer and expensive (>5% interest rate) debt pay-off are more important than investing.
But now you can park $1-2k with IB, learn how to buy exchange-traded funds and then leave it to grow while you focus on saving for now. The lack of fees means your little portfolio will grow happily while waiting for you to return.
You can only invest $500 or less per month. The removal of inactivity fees will help a bit, but the trading commissions and especially the transfer fees will still eat too much of your monthly investment.
Ideally, you shouldn’t lose more than 1% of the amount being transferred on total fees (transfer + trading). So you should probably invest every quarter instead of every month.
These fees are still going to be a pain for anyone investing less than $5k quarterly. If sneaky routes via other currencies won’t work, you could consider a robo-advisor like Sarwa that will absorb some of the fees, until you have more to invest.
Don’t sweat
If this update has left you itching to get started, do check out my Expat Investing Academy that will show you A-Z how to plan, save and invest by yourself. Or if your situation feels complicated, you can always book a private coaching session.
There’s no need to sit there sweating by yourself and feeling overwhelmed. Investing for the long term is surprisingly easy and now it just got a bit cheaper too.
Join my Moving to the UK Workshop – Tuesday 3 December 7-10pm UAE, 6pm KSA, 3pm GMT, 11pm S/HK (live online and recorded)
Thinking of moving to the UK at some point? Don’t miss my fully-updated Moving to the UK workshop, incorporating all the major changes from the latest Budget.
Learn everything you need to do when moving (or moving back), both before the move and after the move, especially to not get caught in some terrible tax traps. Suitable for UK and non-UK citizens.
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