Interest(ing) Question

stock777

stock777

Someone suggested that you don't earn interest at brokers like IB and TS on unsettled funds.

So If I traded all my cash in a day, even though I sold all the stocks by the close, I would not earn any interest overnight on that money.

I don't THINK that's how it works, but does someone know for sure:?
 
IB has the best interest rate for a brokerage I know of.

IB has a great 3.75% on my money over 10k.
TS has a sad 1.125% interest on money over 10k.

Do you have more than 10k in your account?
Is your account a margin or cash account?
You should be getting interest on your equity if you move to cash by end of day.
 
The question was , is interest always payed on total cash unused by the end of the day (my assumption), OR cleared funds, which is something different.

This obviously is amounts over 10k.

PS That 10k thing is a lot more expensive now than it used to be. And if you keep two accounts Margin and IRA, its 20k, unless you are fully invested at all times.

Do the math. 20k, 4%, $800 a year, lost interest.
 
Quote from stock777:

The question was , is interest always payed on total cash unused by the end of the day (my assumption), OR cleared funds, which is something different.

This obviously is amounts over 10k.

PS That 10k thing is a lot more expensive now than it used to be. And if you keep two accounts Margin and IRA, its 20k, unless you are fully invested at all times.

Do the math. 20k, 4%, $800 a year, lost interest.
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In IB's case, they pay interest on total cash unused (over 10K).
 
Even if they paid on settled balances instead of trade-date balances, it wouldn't make much difference in the long run. It basically just delays everything by 3 days.

Would be nice to be able to buy and/or deposit TBills at IB (for amounts less than the $1M minimum quoted by someone earlier).
 
Quote from alanm:

Even if they paid on settled balances instead of trade-date balances, it wouldn't make much difference in the long run. It basically just delays everything by 3 days.

Would be nice to be able to buy and/or deposit TBills at IB (for amounts less than the $1M minimum quoted by someone earlier).
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Well, if you used your buying power every day , then you'd never get any interest. I do NOT think it works that way, but that was the point of the question.
 
alanm:
Even if they paid on settled balances instead of trade-date balances, it wouldn't make much difference in the long run. It basically just delays everything by 3 days.

stock777:
Well, if you used your buying power every day , then you'd never get any interest. I do NOT think it works that way, but that was the point of the question.

If you get paid on trade-date balances, you get interest tonight on your net cash after today's trades. If you get paid on settlement-date balances, you don't get paid for today's net cash today, but you get paid for the net cash after trades from 3 days ago.

I used to be with a broker (I think it was MBT clearing SWS) that paid on settled balances. I bothered keeping track of it in my spreadsheet for a while, but then realized it wasn't significant enough to matter, since my balances were randomly distributed over time.

For example, let's assume you are flat every night, and these are your trade-date balances, and the interest due for each day at 3.65% APR (0.01%/day):

12/12 28000 = 2.80
12/13 29000 = 2.90
12/14 30000 = 3.00
12/15 31000 = 3.10
12/16 32000 = 3.20
12/19 33000 = 3.30
12/20 34000 = 3.40

These are the corresponding settlement-date balances:

12/15 28000 = 2.80
12/16 29000 = 2.90
12/19 30000 = 3.00
12/20 31000 = 3.10
12/21 32000 = 3.20
12/22 33000 = 3.30
12/23 34000 = 3.40


Now I suppose that if your balances went up every single day and you never took any money out, you could make the case that you lose 3 days of interest. Since this is not realistic, though (particularly the part about not withdrawing), you can see that it doesn't really matter. You're going to get $21.70 interest for those 7 days of balances, whether it's paid on the settlement- date balances or the trade-date balances.

I'll add that I'm talking about margin accounts here. I don't have a clue what happens in a cash account, and whether that's been affected by the changes that require waiting for funds to settle before using them again.
 
I use over 2x my buying power everyday in my margin account and I'm still getting paid interest for everyday.

I just realized that you would get interest for a cash account also. Just because the stock trade isn't settled, the cash is still in your account. You just can't use it to make another cash purchase.

Quote from stock777:

Well, if you used your buying power every day , then you'd never get any interest. I do NOT think it works that way, but that was the point of the question.
More...
 
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