Margin Interest Rates Soar With Fed Rate Hikes

Over the past year, there has been a significant increase in interest rates. In February, the U.S. Federal Reserve hiked interest rates yet again, increasing them by .25%. This has followed four consecutive periods of .75% hikes. Interest rates are currently at the range of 4.5% to 4.75%, the highest level since the financial crisis of 2008. The past year of consecutive hikes has been in response to high levels of inflation and the impact of this has been reflected in increased interest rates not just in the U.S., but across the globe. 

In the beginning of March, the Bank of England had its own interest rate increase, bringing rates to 4.25%. Similarly, The European Central Bank raised its interest rate to 3%, and it is expected to continue raising rates throughout 2023. Domestically, institutional lenders have raised their rates in response to the skyrocketing Fed rates. Home equity loan rates are at 8%, five-year new car loan rates are at 6.48% and credit card rates are at 20.04%.

Interest Rate Impact On Brokerage Margin Rates

Increased rates in America are also causing significant headwinds for stock markets. Around $362 billion in daily volume is traded on exchanges in the United States, with 58% of adults holding investments in the stock market. 

One way brokerage firms can demonstrate support to retail investors is by keeping margin interest rates low. Margin investing involves borrowing capital from the broker to purchase an investment, and the margin interest rate is the interest charged by the broker on that loan. Trading on margin can help traders to leverage more capital in order to potentially maximize returns. When a brokerage firm offers a low margin rate, this may empower investors by increasing their purchasing power and opening up further investment opportunities.

Interest rate hikes can impact trading in several ways, such as by increasing the margin rate that brokerages charge on margin loans. Currently, the margin rates for M1 Finance are 8%, Robinhood’s are between 6.50% and 10.75%, and Charles Schwab Corp’s range is between 11.325% and 12.825%.

Despite the overall rising trend in margin rates, some firms have continued to keep barriers low for borrowers. TradeUP Securities, Inc. is a brokerage firm that offers a proprietary trading platform, TradeUP (along with a desktop and mobile app), to keep the market accessible to traders. In addition to offering commission-free trading, TradeUP Securities's self-clearing ability allows them to offer a competitively low margin rate. In fact, the company has kept its margin interest rate at a low 1.99%, which is currently one of the lowest among all $0 commission brokers.

TradeUP Securities is affiliated with US Tiger Securities Inc., a leading equity underwriter. Through this affiliation, TradeUP Securities provides a primary access service to the markets, which allows TradeUP to offer exclusive subscriptions to initial public offerings (IPOs) and special purpose acquisition companies (SPACs). TradeUP Securities, Inc. is a member of the Chicago Board Options Exchange Electronic Designated Global Exchange (CBOE EDGX), the New York Stock Exchange (NYSE), the Options Clearing Corporation (OCC) and the Depository Trust and Clearing Corporation (DTCC). TradeUP is also a member of the Securities Investor Protection Corporation (SIPC) and the Financial Industry Regulatory Authority (FINRA). 

Retail investors can take advantage of low margin rates – like TradeUP’s 1.99% rate - to trade without being worried or held back by higher margin interest rates. With predictions that the Federal Reserve will raise interest rates at least three more times this year, now could be a good time for retail investors to take advantage of firms that are keeping their interest rates low. TradeUP Securities, Inc. offers easy, one-click account transfers and ACATS transfer reimbursement – all without the need to liquidate investors’ positions.

Want to learn more about what companies like TradeUP Securities are doing to keep trading affordable for retail investors? Visit their website. 

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investment advice. Neither the information nor any views expressed herein constitute an offer or an invitation to make an offer to buy or sell any securities or options.  It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may read this material. All investing involves risk, including the loss of any principal invested. Carefully consider the investment objectives, risks and expenses before investing. Options are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before trading options.

MI Finance, Robinhood and Charles Schwab Corp. are not affiliated with TradeUP Securities Inc or its affiliates.

Featured photo courtesy of TradeUP.