M1 Finance Margin Rates Compared to Market

M1 Finance's margin rates are competitive with the market, but let's take a closer look at the numbers.

M1 Finance's base interest rate is 3.75%, which is lower than the average margin rate offered by other brokerages, according to a comparison of M1 Finance's rates with those of other online brokerages.

For example, Ally Invest's margin rates range from 3.75% to 9.75%, while Fidelity's rates range from 3.75% to 9.25%. M1 Finance's rates are more consistent, with a single rate of 3.75% for all accounts.

This consistency can be a big advantage for investors who want to avoid surprises in their margin rates.

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M1 Finance offers some of the cheapest margin rates around, typically far lower than any credit card or bank loan.

The current base M1 Borrow interest rate is 7.25% APY, which can be significant depending on your loan. You can borrow up to 50% of your invested balance, meaning for a $10,000 portfolio, you can borrow up to $5,000.

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M1 Plus users can take advantage of 7.25% interest, which can be a great deal considering the average interest rate for a personal loan is 10.6% and credit card interest is a whopping 18.43%.

Here's a comparison of M1 Borrow rates with other types of loans:

M1 Borrow can save you a significant amount of money, making it a great alternative to a personal loan and an opportunity to consolidate your other loans and credit cards.

Having a higher margin requirement can significantly impact your portfolio. In Scenario 2, the maintenance requirement increased to $50,000 due to highly volatile stocks with a 100% margin requirement rate.

This resulted in a $10,000 maintenance margin call, showing how a higher requirement can lead to a larger call.

Using margin can add to the risks of investing, including the risk of losing the money you invest.

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The current loan rates for M1 Borrow are quite competitive. The base M1 Borrow interest rate is 7.25% APY, which is significantly lower than the average interest rate for a personal loan, which is 10.6% according to Federal Reserve data.

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M1 Plus users can take advantage of the 7.25% interest rate, which can save you a significant amount of money. For example, if you have a $5,000 loan, you'll pay $362.50 in interest over a year, assuming a 7.25% interest rate.

To put this in perspective, credit card interest rates are even higher, at 18.43% on average. This makes M1 Borrow a great alternative to a personal loan and an opportunity to consolidate your other loans and credit cards.

The good news is that M1 Borrow's rates are lower than many other loan options. However, it's worth noting that the base rates for M1 Borrow can fluctuate when the Federal Funds Rate goes up or down.

Here's a comparison of the current loan rates:

Overall, M1 Borrow's competitive loan rates make it a great option for those looking to borrow money at a low interest rate.

Margin allows you to enhance your investment exposure, increasing your position, which is great if the market is going up.

A margin loan can be a source of credit with no credit check and no repayment schedule, allowing you to borrow against your portfolio and use the loan to cover emergency expenses.

With an 8% interest rate, the interest on a $10,000 margin loan is $800, which is a significant cost to consider.

Margin loans can be cheaper than other forms of credit like a bank loan or credit card, making them a more attractive option for investors.

A 2x leveraged portfolio, where your buying power is 2x the amount of your initial capital, can be achieved with a margin loan, allowing you to double your exposure to investments.

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Market depreciation can have a significant impact on your portfolio. A margin call can be triggered if your portfolio value drops below a certain threshold.

To calculate this threshold, you can use the formula: (Margin Loan balance - cash) / (1 - margin requirement rate). In our example, this translates to: ($10,000 - $1,000) / (1 - 0.25) = $13,333.34.

This means that a 70% drop in portfolio value would be needed to trigger a margin call. A drop to $13,000 would still leave excess equity positive, avoiding a margin call.

However, a drop to $11,000 would result in a negative excess equity, requiring a deposit of $750 to meet the margin call.

M1 Finance offers some of the cheapest margin around, with rates typically lower than any credit card or bank loan I know of. This makes it perfect for emergency expenses or financing major purchases.

With M1 Borrow, you can borrow up to 50% of your invested balance, resulting in a leverage ratio of 1.50. This is a huge advantage over traditional brokers, which often have much higher margin rates.

You can utilize M1 Borrow once your account reaches $2,000, and it's available for margin accounts with $2,000 or more in equity. No denials, loan officers, credit checks, or paperwork are required.

M1's competitive rates make it ideal for portfolio leverage, home improvement projects, refinancing higher-interest debt, and financing major purchases. Rates may vary, but they're generally much lower than what you'd find elsewhere.

Here are some examples of how M1 Borrow can be used:

M1 Borrow is not available for retirement or custodial accounts, so be sure to keep that in mind if you're considering using it for a specific purpose.

M1's 35% margin offering is worth noting, as it deviates from standard margin requirements. Sumit Agarwal asked about this in the comments, and it's a good question to consider.

Standard margin requirements can vary by security leverage, with 25% for 1x and 75% for 3x leveraged ETFs being common examples. This means that M1's 35% margin offering is actually a more conservative approach than some other options.

It's worth understanding how M1's margin requirements work, as it can impact your investment strategy.