IBKR Benchmark Rate Explained for Investors

The IBKR Benchmark Rate is a key concept for investors to understand, especially when it comes to trading with Interactive Brokers.

IBKR Benchmark Rate is a floating rate that is calculated daily and is based on the average of the bid prices of the 3-month US Treasury bill, the 3-month Eurodollar deposit, and the 3-month LIBOR rate.

This rate is used as a benchmark to calculate the interest paid on margin loans and cash balances, and it's also used to determine the interest charged on margin loans.

The IBKR Benchmark Rate is designed to reflect the current market conditions and is updated daily to ensure that it accurately reflects the current interest rates.

Consider reading: Margin Loan Ibkr

The IBKR Benchmark Rate is based on four key factors: the cash balance in your account, the overall value of your account (known as the Net Asset Value or NAV), the currency in which your uninvested cash is held, and the account segment where your uninvested cash is held.

Expand your knowledge: Ibkr Account Types

Your cash balance below $10,000 does not earn interest, but the rate for balances above $10,000 increases as your NAV approaches $100,000. Clients with a NAV of more than $100,000 earn an annual rate of 3.83% on their USD cash balances above $10,000.

The interest rate is a blended rate, combining the rate payable on your cash balance below $10,000 and the rate payable on balances above $10,000. This rate is subject to change.

If you have multiple accounts, the balances will not be consolidated, and interest will be calculated on each currency holding separately. The USD $10,000 threshold applies to each currency holding.

Here's a breakdown of the interest rates for different scenarios:

*Rate shown applies to IBKR Pro clients only.

Managing your cash with IBKR is a straightforward process. You can earn interest on positive settled cash balances, and the amount you earn depends on the blended annual rate for which you are eligible.

The blended annual rate is applied to the uninvested cash in your account, but balances below a certain threshold will earn no interest. This means you need to have a certain amount of cash in your account to start earning interest.

Here's a comparison of interest rates offered by various financial institutions, including IBKR, to give you an idea of what to expect:

As you can see, the interest rates vary depending on the institution and the balance in your account. It's always a good idea to review the rates and terms before making any decisions.

Margin loans and interest are a crucial aspect of trading with IBKR. IBKR accrues interest on a daily basis and posts actual interest monthly on the third business day of the following month.

The interest tiers may change without prior notice to clients, and these adjustments are made periodically to account for fluctuations in currency rates.

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A minimum floor of 0.75% will be charged on margin loans, and rates are subject to change. This means that even if the benchmark rate is less than 0.75%, you'll still be charged at least 0.75%.

IBKR will also assess a surcharge of 1% on large loan balances unless otherwise prearranged with IBKR. This 1% surcharge would apply to all balances in the highest tier.

To give you a better idea of how interest is calculated, here's a breakdown of the interest tiers:

Note that this is not an exhaustive list, but it shows how interest rates vary depending on the currency and tier.

IBKR may apply an effective negative rate to long balances held in JPY or RUB.

This means that for accounts holding these currencies, the negative rate applied is the same regardless of account size.

For other currencies where the effective rate is less than zero, the interest paid is 0%.

This can have a significant impact on your account balance, especially if you're holding a large amount of these currencies.

IBKR offers two main trading plans for stocks and ETFs: IBKR Lite and IBKR Pro. IBKR Lite is free for U.S. residents, with no commission fees per share.

The commission fees for IBKR Pro are quite low, ranging from $0.0005 to $0.0035 per share, which is a significant advantage for frequent traders.

Expand your knowledge: Ibkr Options Fees

Interactive Brokers (IB) offers competitive rates, especially for clients with a Net Asset Value (NAV) of over $100,000. The rate is 3.83% on USD cash balances above $10,000.

The rate increases as your NAV gets closer to $100,000. However, clients with a NAV of less than $100,000 will receive a lower annual rate.

Interest is not payable on the first $10,000 of uninvested cash balances. This means the overall amount of interest payable is a blended rate, combining the rate on cash balances below $10,000 and the rate on balances above $10,000.

Here's a breakdown of the interest calculation:

The interest rate is calculated on each currency holding, and the $10,000 threshold applies to each currency holding.

Additional reading: Ethiopia Usd Exchange Rate