Which one of these low-cost brokers is better and why? Let’s take a closer look and find out.
I’ll of course also show you how they each work, so you’re not completely lost when you first log in to your account.
This is going to be a long post, so feel free to jump to any section you’re most interested in via the table of contents below!
Please don’t forget that none of this is investment advice, just my personal opinion based on my own experience as an investor.
177.800€ in ETFs – My investment strategy
Before we get into the comparison, here’s some short info about me, so you know where I’m coming from.
I started investing into stocks via ETFs in early 2017. My ETF portfolio, which I share with my wife, is currently worth around 177.800€:
You might be wondering about the substantial jump compared to my last monthly update in case you’re reading those. Well, we added quite a bit of money at the start of November and the market has been turning around recently.
Our investment strategy couldn’t be more simple.
We just buy a single ETF, the accumulating Vanguard FTSE All-World (ISIN: IE00BK5BQT80, Ticker: VWCE) on a regular basis, which enables us to passively invest into over 3.700 companies from all over the world. All while keeping fees to a minimum.
Interactive Brokers vs. Degiro
As always, if you enjoy this kind of in-depth content and you’d like to support me, feel free to use my links in this post if you decide to sign up for a free brokerage account on either of the two.
Degiro was founded in 2008 in the Netherlands and was purchased by the German broker and bank Flatex in 2020.
Shortly after, Flatex renamed itself to FlatexDEGIRO:
Degiro, which is now running under Flatex DEGIRO Bank Dutch Branch, is a well regulated broker, supervised both in Germany and the Netherlands.
It also doesn’t hurt that FlatexDegiro is a publicly traded company, which means there’s even more oversight as they have to publish all of their finances on a regular basis.
Degiro made a name for itself in Europe due to its low fees for stocks and ETFs and due to its offering of 200 “commission-free” ETFs (more details below), which have since been renamed to ETF Core selection.
We’ll have a look at the exact fees and what you need to keep in mind later on.
Degiro – Share lending policy explained
There is one thing you need to be aware of however. One way Degiro subsidizes its low fees is by having the right to lend out the shares in your account, as stated under article 20 in its client agreement.
You used to be able to choose between two account types:
- Basic – With no dividend fees but the share lending I just mentioned
- Custody – With some fees on dividends but no share lending by Degiro
Sadly Degiro removed the Custody option in 2021, so your only choice when signing up is a basic account now.
My guess is, too many people ended up simply investing into accumulating ETFs using custody accounts and so Degiro was making less money by keeping this option.
That being said, you should know that I’m also using a basic account on Degiro. I consider the risk from any of my securities being lent out by Degiro to be very small.
Still, you need to understand how it works to make up your own mind:
- The stocks or ETFs you own can be temporarily lent to third parties, if they’re able to provide 104% of their market value as collateral.
- Degiro itself always acts as the counter-party if shares are lent out. Which means that if for whatever reason the borrower’s securities are unable to cover the value of the borrowed shares, then Degiro has to make up for the difference with its own funds.
As a result, here is the very unlikely worst-case scenario as explained by Degiro:
Damage for a client whose Securities are Lent therefore arises only at the moment when both the borrowing party and DEGIRO are no longer able to meet their obligations (i.e. are bankrupt) and the value of the security has fallen or the value of the Lent Securities has risen. The amount of the damage is limited to the difference in value between the Lent Securities and the security provided by the borrowerSource (Degiro Investment Services Information)
Now, I don’t think that it’s likely for ETF shares to be lent out too often compared to popular single stocks.
But, this still means that the basic brokerage accounts on Degiro carry some counterparty risk, limited to the difference between the collateral and the current share value of the lent out shares, if both the borrower and Degiro were to go bankrupt at the exact same time.
Ok, now that we got Degiro’s one small downside out of the way, let’s have a look at its fees. After all, Degiro made a name for itself in Europe because of its low fees for buying & selling stocks and ETFs.
Degiro – Fees in detail
I’m mostly going to focus on ETFs, since that’s what’s relevant to most of the people in our community of investors.
Generally, Degiro charges 2€ for each ETF trade, no matter which amount, plus a 1€ handling fee.
The only exception is when you buy ETFs via the TradeGate exchange, which is abbreviated as TDG. There you pay a total of 3,9€ for each ETF purchase or sale.
In addition, Degiro charges a 2,5€ exchange connectivity fee/year for each of the exchanges you use. This is something you should keep in mind if you have stocks or ETFs on several different exchanges.
So even if you’re just holding your position (eg. the accumulating Vanguard FTSE All-World ETF) on one exchange, you should be aware that Degiro will charge you 2,5€ once a year. Meanwhile, if you have positions on four different exchanges, you’ll be charged 4 x 2,5€ = 10€ every year in exchange connectivity fees.
So make sure you leave a small amount of cash on your account for these yearly fees.
Degiro ETF Core Selection (commission-free ETFs?)
Degiro also offers an ETF core selection of 200 ETFs, which can be traded commission-free, as long as all conditions are met. You can find the full list here (Fees – ETF Core Selection in the menu).
Luckily, my favorite ETF (Vanguard FTSE All-World) is also available, both in the distributing and accumulating version.
Here’s how these work:
- Every calendar month, the first purchase or sale of one of the ETFs listed under Degiro’s ETF core selection is completely free of charge (no matter the amount), as long as you use the exchange that’s listed next to the ETF on the list.
- If you’re planning additional trades of over 1.000€ each, you can buy or sell even more shares of the ETF that same month commission-free, as long as the direction is the same as the first trade. Meaning if you placed a buy order before, it needs to be a buy order again and if it was a sale, it needs to be a sell order again.
Again, the yearly 2,5€ exchange connectivity fee for each exchange you hold one of your ETFs on still applies here as well.
Just keep in mind that even though you’re not paying commissions directly, Degiro still forces you to use a single exchange for your order and mentions that spread costs may apply. So even though the trade seems free, it’s possible that you end up paying a slightly higher price per share than if you had been able to choose any exchange you wanted. More on that later.
Calculating actual currency conversion fees (Degiro)
If you receive dividends in USD, for example from the Distributing Vanguard FTSE All-World ETF, you can’t keep those in dollars on Degiro.
Instead, they will be converted to euros, for which Degiro charges a 0,25% fee. However, I did some calculations to figure out exactly how much we’re actually paying when looking at the EUR-USD exchange rate according to the ECB on the days Degiro converted the money.
Here are the results:
As it turns out, we basically paid 0,77% in conversion fees on USD dividends we received on April 1st and almost 1% for dividends on July 1st. That’s a lot more than the 0,25% fee that is advertised.
It’s obviously not the end of the world, but something you should be aware of.
If you have an accumulating ETF, meaning an ETF that automatically reinvests dividends into more shares of the stocks within the ETF itself instead of paying them out to your account, then this won’t be an issue!
Degiro bonus tip (hello Ireland!)
Very few people seem to be aware of the fact that you can actually sign up to another country’s Degiro interface even if you don’t live there. For example, I was able to sign up to Degiro Ireland, even though I’m an Austrian resident and Degiro is not available in Austria anymore (everyone was moved to Flatex).
Another benefit was that I was finally able to have my account in English instead of German.
How to buy ETFs on Degiro (Tutorial)
If you’d like to see the process in action, feel free to watch my screen recording below:
That being said, it’s usually best to place your orders on weekdays between 9:00 – 17:30 CET, as that’s when the largest European exchanges are open.
First, we need to find the ISIN number of the ETF we want on JustETF.
Now, before placing an order, it’s worth checking if it’s part of the ETF core selection on Degiro, as that could save us some fees.
For this, we need to paste the ISIN number into the search bar on Degiro’s core selection page. If our ETF shows up, we need to make sure we use the exchange that’s listed next to it in our order.
Next, we paste the ISIN number in our Degiro account’s search bar, select the correct exchange (eg. XET for the accumulating Vanguard FTSE All-World) and once the page loads, we select Buy.
I recommend keeping it a Limit order, meaning we’re not going to pay more than the amount that’s listed next to it per share. Degiro itself sets a limit based on current market prices and most likely it won’t be necessary to change it.
That being said, the pricing data is sometimes delayed on Degiro. As a result, it might make sense to double check current prices on TradingView to get a better idea if the limit price we’re seeing is up to date.
Last but not least, we enter the quantity of shares we want to buy on Degiro, make sure the total order amount isn’t higher than the cash we have on our account and click on place order.
Alright, let’s move on to Interactive Brokers.
Interactive Brokers has a very long history, being founded 45 years ago (1977) in the US and is strictly regulated in the US, in Europe via its subsidiaries in Ireland and Hungary, the UK and many other countries across the world.
It’s one of the largest brokerages in the world, with an excellent reputation.
Like FlatexDegiro, IBKR is also listed on the stock exchange. Among these two, Interactive Brokers is a much larger company, with a market cap that’s almost 30x the size of FlatexDegiro:
Not only that, IBKR currently has close to 22x as much equity capital as well: $10,9 billion compared to €500 million on FlatexDegiro.
You’re able to buy fractional shares on Interactive Brokers, which is something that isn’t possible on Degiro. Fingers crossed they’ll also add fractional shares for the Vanguard FTSE All-World soon, as that one is not included yet.
ETF research tools on Interactive Brokers
Now, if you want to quickly compare things like dividend yield and price to earnings for ETFs or stocks, IB has a useful tool called Global Analyst.
If you’re looking at ETFs, make sure you select Europe as the region, otherwise you might see some US-based ETFs you can’t actually buy as a European investor due to EU regulations.
Not only that, when you select an ETF within the Interactive Brokers web interface and click on Research, you’ll find a lot more useful information like top 10 holdings, allocation by industry and country as well as the currency distribution of the stocks within it:
If you’re looking at a distributing ETF, you’re also able to see past dividend payments as well as its current dividend yield under the Dividends tab.
Does Interactive Brokers lend out your shares as well?
No, I’m happy to say that there is no securities lending by default on Interactive Brokers, which is how it should be in my opinion.
What is more, if you actually want to lend out your stocks or ETFs to earn a tiny amount of extra income, you’re still able to, by switching your account type to margin and then explicitly activating the stock yield enhancement program in your settings:
In this case, you even earn 50% of the interest that is paid to borrow the shares, while when that happens on Degiro, you get nothing.
Still, from what I’ve read online, you most likely don’t earn more than 0,1% extra per year by activating the stock yield enhancement program. So in my opinion it might not be worth it.
Also, you have to qualify for a margin account first, for which IB has very high requirements.
Interactive Brokers fees explained (ETFs)
Interactive Brokers has some of the lowest fees in the industry, especially since they completely removed inactivity fees in July 2021. Which means you don’t need an introducing broker like CapTrader any more, you will get the lowest fees if sign up to Interactive Brokers directly.
Not only that, the fees are not subsidized by lending out the shares you own and there are no hidden, added spreads when trading. There is no account minimum either.
There are no exchange connectivity fees like on Degiro or any other fees for having an account. If you’re a buy and hold investor like myself, it’s likely that the only time you’ll be seeing any kind of fee is when you trade.
You won’t be paying any fees if you’re just holding your shares on your brokerage account, no matter how many different exchanges you used to buy them.
Still, let’s take a closer look:
I’m once again going to focus on investments in ETFs here, more specifically some of the most common ETFs for European investors and I’ll try to keep things as simple as possible.
If you’re looking for single stocks or something else, feel free to check out the exact fees yourself on the website.
Tiered vs. Fixed pricing plan
Interactive Brokers has two commission models – tiered and fixed. You can switch between them in your account settings whenever you want.
In my experience, the tiered commission model is generally cheaper for orders below 6.000€, while it makes sense to switch to the fixed commission model for orders above that amount.
I created this calculation sheet, which might help. Feel free to create a copy so that you can enter the amount you’re planning to invest and see the approximate savings by going with either of the two options.
Also, if you’re lucky and your order gets executed via the Gettex exchange when using the tiered pricing model, you save a few extra cents, as that exchange comes with no extra fees apart from the 0,05% IB fee. This usually happens to me every second or third order.
Anyway, as you can see commissions when buying or selling ETFs on Interactive Brokers are extremely low. You’re basically paying 1,38€ for an order of 2.500€ or even just 1,25€ if the order is executed via the Gettex exchange.
In the latter case, keep in mind Gettex will only be used if it’s also the exchange with the best price for your order. Otherwise, even if you’re paying a few extra cents, this simply means you were able to get a better price on another exchange for your order, saving you money that way.
When you place an ETF order via the Interactive Brokers web interface or via its app, the broker looks for the best available price across all exchanges via its smart routing system (NBBO), so the lowest price when buying and the highest price when selling.
It’s a really cool, unique feature that you won’t find anywhere else.
Support for multiple currencies (how to convert them for free!)
One more nice thing about IBKR is that if you receive dividends in other currencies than EUR, so for example USD from the Distributing Vanguard FTSE All-World ETF, you can keep them on your account in that currency. You won’t be forced to convert them and to pay exchange fees like on Degiro.
You can then use those dollars to place other investments directly in USD or if you want to convert them to euros without paying any fees, here’s a little trick:
- Just add your free Revolut bank account as a USD withdrawal method, to which you can withdraw directly in USD without any withdrawal fees once/month.
- Since Revolut doesn’t charge any currency exchange fees from Monday-Friday you can then convert your money to euros there.
If you wanted, you could then send the money back to Interactive Brokers in euros, but that’s up to you.
How to buy ETFs on Interactive Brokers (Tutorial)
Alright, let’s get practical. Let me show you how you actually buy ETFs on Interactive Brokers.
To see the process in action, here’s a live screen recording of me investing 2.100€ into the Vanguard FTSE All-World ETF:
Once again, it’s usually best to place your orders on weekdays between 9:00 to 17:30 CET, as that’s when the largest European exchanges are open.
To buy an ETF on IB, we first need the ticker symbol of the ETF we want to invest in. I like to use JustETF for that. There, when clicking on the Listing tab, we can see the ticker symbol we need to find the ETF, traded in the correct currency (€), on IB.
You can usually also find it using the ISIN number, but in most cases, you’ll still need to select the correct trading currency and exchange, as you’ll be offered many more options. As a result, it’s easy to make a mistake that way.
In my case, the ETF I want to buy (accumulating Vanguard FTSE All-World) has the ticker symbol VWCE. After entering it into the search field in the Interactive Brokers web interface (or app), and clicking on Buy, we can double check that we selected the version that’s traded in EUR:
In my example, I’m planning to invest 2.100€ into the ETF, which gets me 22 full shares based on the current market price, with the rest remaining in cash.
We’ll leave order type as Limit, meaning that’s the highest price we’re willing to pay for our shares. It’s automatically set based on the current price action in the market so you most likely won’t need to change it – unless you’re betting on the market moving in a certain direction (which I don’t do).
Then, when clicking on Preview, we can review our order, where we see we’ll be paying between 1,25-1,35€ in fees for our 2.100€ order. After quickly reviewing that everything is correct, we click on Transmit Order.
And we’re done, in our case the order was filled right away:
We purchased 22 shares for a total of 2.097,48€ and paid only 1,35€ in fees using the tiered pricing model.
By the way, you can find your past trading history on IB under Performance & Reports – Statements – Activity, where you can then enter the date range you want to see. There you’ll be able to see all the details of your previous purchases or sales under Trades.
Interactive Brokers vs. Degiro – Conclusion
First of all, both of them are excellent low-cost brokers, there’s a reason why these two are the most popular choices in the European finance community.
They also both allow you to transfer your shares to another broker whenever you want. Let’s say something changes with the fees and you’re not happy with your choice any more – no problem, you can simply transfer your shares over to a different brokerage account.
This is an important feature, especially for long-term investors. It means you don’t need to sell your shares when you want to leave a broker, already realize potential profits (which you would then need to tax that year already), instead of in the future (eg. in retirement) when you actually need the money.
As to which one is the better choice, let’s quickly take another look at their respective fees based on the example below.
How much “commission-free” ETFs really cost
If you bought an ETF from Degiro’s core selection of ETFs using the correct exchange, you likely didn’t pay any fees for the order directly. Just keep in mind that you may have had to pay a slightly higher price per share since you were forced to use a single exchange.
Still, the “commission-free” purchases every month can be a good, inexpensive option, especially for someone that doesn’t have more than 100-500€ to invest every month.
When you’re investing larger amounts, so over 1.000€ – 2.000€, the hidden spread costs on Degiro and the single exchange that you’re using can become more of a factor.
Here’s what I mean:
Let’s say you’re investing 2.000€ into the Accumulating Vanguard FTSE All-World ETF on Degiro and each share of your ETF currently costs around 80€.
You place a limit order, which is executed at exactly 80€ per share, so you paid 2.000€ for 25 shares.
Meanwhile, let’s pretend you placed that same order at the exact same time on Interactive Brokers which uses its smart routing to get you the best available price across all exchanges.
As a result, the same order gets filled at a price of 79,9€/share on IB, for a total of 1997,5€.
That’s 2,5€ less for the same amount of shares (25). Even though you don’t see this “fee”, it still has the same effect as if you paid it directly.
To be fair, we also need to include the 1,36€ in trading fees on Interactive Brokers. When taking that into account, we still paid 1,14€ less on IB.
Not only that, let’s not forget the 2,5€ in yearly exchange connectivity fees on Degiro, multiplied by the number of exchanges your shares are on.
The winner is… (3 major differences!)
Personally, in today’s comparison I have to give the edge to Interactive Brokers, which is also why it’s the broker I’ve been using the most this year.
While the web interface definitely has plenty of room for improvement, as it is way too complicated for non-professional investors, there are 3 things that I like more about Interactive Brokers:
- More transparent fees including a smart routing system which gets you the best prices for your orders across all available exchanges, no hidden spread costs or other regular fees like the exchange connectivity fees on Degiro. And the fees you do end up paying are extremely low, as I showed you something like 1,36€ for an ETF order of 2.000€.
- You can hold cash in several different currencies on your Interactive Brokers account, without the need to convert it and pay conversion fees – which you’re sadly forced to on Degiro. You can even withdraw that cash in that same currency to your bank account for free once per month.
- Third and most importantly, there is no share lending by default on Interactive Brokers. The only exception is if you use a Margin account and then explicitly activate it yourself, to maybe earn a bit of interest on your positions. But, even in that scenario, you’re free to deactivate it again whenever you want. Meanwhile on Degiro, there is no option to opt out of share lending, especially now that you can’t sign up for Custody accounts any more. Even though the risk from your shares being lent out is very low, this still means that you’re exposed to a small amount of counterparty risk on Degiro. As a result, I would sleep better having larger investment balances (eg. >20.000€) on Interactive Brokers. But then again, this is just my personal preference.
I would love to know which one of the two you prefer down below in the comments!
According to my poll on YouTube, Interactive Brokers has a small lead so far:
Before you take off, if you enjoyed this in-depth comparison and you’d like to support me, feel free to use my links to Interactive Brokers or Degiro if you decide to sign up for a free brokerage account on either of the two!
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