IB interests calculations

L

luisHK

Hi

I will probably give a call to IB one of these days on that topic but from experience the first explanation from IB isn't always the right one, although i haven't noticed their system doing mistakes in calculating interests or witholding tax. Yet can't say I often looked closely.
So can one confirm how interests payments on positive USD balanceq are calculated ( it is advertised as 1.42% over 10000usd )
My understanding is the system takes the total USD cash balance in the account, substracts from it the maintenance margin requirements for futures and FOPs held, as well possibly as other derivatives (other derivatives my account doesn't hold), than pays 1.42% p a on the remaining balance over 10000, calculated daily.
That doesn't quite match the interests on the daily statements so i'm wondering what I got wrong, if anything. i've started moving extra cash to Ib from banks that hardly pay anything on positive cash balances but then would like to receive that 1.42%.
Besides what would be the easiest way for a retail guy to get closest to the full benchmark rate on his cash, I'm usually short a bunch/few of ES futures where one can profit of the embedded interest rates, but the opposite long side haven't worked great this year, so I will try to not go crazy on those, at least until feeling better inspired.


Anyone can shed a light on this topic ?

Thanks in advance
 
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I'm not too familiar with how futures affect the interest calculations, but I can add a few things.

If you are short any stocks, you have to subtract those proceeds from your net cash balance. The short proceeds earn interest independently according to the schedule here.

I was once able to match their calculation exactly. If I remember correctly, there's a one day lag, so you should be using the "Ending Settled Cash" from the previous day's statement (with adjustments for short sales and maybe futures) to compute the interest accrual on the next day's statement.

As for earning a better rate, there are a few threads about SPX box spreads, or you could buy treasuries.
 
@luisHK do you hold multiple currencies in your IB account? And use USD as your BASE currency in your account? You might be aware of this, but nevertheless:
If so, then beware to not look at your total cash balance in BASE (= USD) but only look at the actual USD cash balance. Calculating interest is done on a "per currency" basis.
 
When I've bought US gov t-bills (less than 6 months until maturity), it only reduces my available margin by 1%. In other words, the bonds are paid 100% in cash (so your cash balance will reduce by whatever you paid for the bonds), but the bonds act as margin collateral. You then effectively get the bond "rate" on whatever cash you put in to the bonds at the expense of reducing your margin requirements by 1%. If you weren't maxing out your account anyway, then this is probably a non issue. Different types of bonds and expirations have different margin requirements.

See https://www.interactivebrokers.com/...ex=us&rgt=1&rsk=0&pm=0&rst=101004100808010801

Having said all of this, I'm no bond trader. In fact, I had to go above the ask to get a fill (I suspect it was due to my size as I was only doing $25k as a test as that's where IBKR's minimum commission on bonds comes out). It seems to me that the prices at the ask must function like "all or nothing" orders, but I have no idea what the minimum size to get the ask price is. In any case, what I'm saying is that if you're not doing sufficient size (and I have no idea what that size is), you'll probably have to go above the ask, which effectively means a worse rate of return, but it will still likely be more than the interest once you take out the commissions. Whether that's worth the hassle and risk to get an extra ~0.3% or whatever it comes out to these days is for you to decide.

I personally decided my time trying to get a fill on the bonds was not worth the time investment for such a small change in effective interest payments. Sounds like you have a much larger account, so perhaps it is worth it for you (and you'll probably get a better fill price).
 
Thanks all for your replies. I'd understood apparently what you suggested for the interests' calculations, just checked again today and there is still a discrepancy when taking the maintenance margin requirements for the futures, yet I come at the same total interest accrued when taking the Futures and FOPs initial margin requirements. Not clear why the system would select the initialrather than the maintenance requirement but that might be the explanation.

Thanks also for the advice on buying government treasuries or bonds and SPX box. Checked government bonds on TWS a while ago, thought it wouldn't be worth the hassle and commissions while I used to not keep too much cash on the account, at least not for long, preferring going long stocks/short ES (also sometimes long/short short stocks, but interests wise it is less interesting) an equivalent position, but it might soon be the right time to change that strategy. Had no idea one might have to buy above the ask, indeed i'd go for bigger positions than 25k, but not institutional size either.

As of SPX box spreads, not familar with those, thanks for bringing them up, will need to read on them, I suspect it would become more worthwhile while I get out of the long/short strategy as well.
 
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luisHK said:
Thanks all for your replies. I'd understood apparently what you suggested for the interests' calculations, just checked again today and there is still a discrepancy when taking the maintenance margin requirements for the futures, yet I come at the same total interest accrued when taking the Futures and FOPs initial margin requirements. Not clear why the system would select the initialrather than the maintenance requirement but that might be the explanation.
More...
This might depend on the amount of time which has passed since your last trade in a certain instrument. I would guess that initial margin is used during the first 24 hours, after which the margin requirement would change to maintenance margin requirement. But I could be wrong about this.
 
Week have passed since the last future trade. I might be missing something as well. Might end up contacting IB, to understand properly how that works. Confident their system is calculating properly, but again not so confident the reply from IB will bring a definitive answer.
 
I am not sure whether you already have access: there is a detailed overview of all credit and debit interest calculations available in IB account management. However, you have to request this, it is not available by default. If you have access to it, it is located under "Custom Statements" and is called "Interest Details". If you run it you get to see an overview for each currency in your account. It has helped me a lot in better understanding where the debit and credit interest came from.
 

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https://www.interactivebrokers.com/en/index.php?f=interest&p=calculations

Quite a few explanations in the link above, but loaded with formulas like :

Minimum(-Minimum(SettledEquityCash + SettledIBUKLCash),0), SettledCommodityCash – CommodityRiskMargin)

But in my case at least it keeps on approximating :

"My understanding is the system takes the total USD cash balance in the account, substracts from it the maintenance margin requirements for futures and FOPs held" but with initial rather than maintenance requirements for futures.

When I try to open a ticket more explanatory links on the topic are offered, but for some reason (read : internet and computer issues from my part, most likely) most of them don't open. I guess I'll pass on the ticket, doubt they would have the patience to spoon feed me more than the links do.
Also suspect the issue comes from the Adjustmentforsecuritiesdeficit, although the difference in interest accrual from what the system calculates compared to what i expected comes to quite a bit less than interests that would be lost if the system took a 2% cushion on all long securities held.
 
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Yeah, all those formula's are not easy to understand.
I don't hesitate having them "spoon feed me" if I think that is necessary for understanding the mechanics and me avoiding making mistakes in the future. Looking back I had to be spoon fed on multiple occasions, but it did make a me a bit wiser man.
 
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