I’ve talked multiple times about how important is to do your due diligence with brokerages. I’ve even done a post on this myself at the beginning of my blogging here. Yet, apparently, I’ve did a mistake with my own so choose your brokerage wisely, guys.
In September I noticed a strange $20 charge on my brokerage homepage that wasn’t part of something I’ve done. Of course, I’ve neglected it for quite some time. When I finally started to read and understand what this is, was already late.
Brokerages inactivity charges
Yep, that was it. I was hit by an inactivity charge. It was a $20 charge. Just to mention, I’ve chosen Interactive Brokers as my brokerage and I was pretty sure that this charge would be $10/month tops. Well, apparently, I didn’t read till the end of the paragraph.
It appears that the inactivity charge with IB is $20 after the 3rd month for accounts with less than $2000. I was already wondering why there were no inactivity charges on my account considering the fact that I invest only once or twice a month. However, the $20 felt a bit excessive, apparently, I didn’t choose my brokerage wisely.
What happened is that I somehow thought that by the end of the year, I will have $2000 in my account and this inactivity charge will be $10. Apparently, I forgot about the fact that my plan was to invest €100/month till the end of the year. I know this isn’t much, but it feels right when you know you’re inexperienced.
Closing my Interactive Brokers account
As it was almost the end of the month and the next $20 inactivity charge was to be applied soon, I decided to close my account. I was basically having 2 options ahead of me: closing my account or investing another $1400 so I can reach $2000. The second option was feeling like a not that bad of an idea, but I felt that it would be a mistake.
I felt it would be a mistake because correcting a mistake with a move you’re not certain about felt stupid. I was clearly doing something wrong if I let things reach this point. After all, even reaching $2000 with my account, the inactivity fees would be $120/year. If I invest $2000 in an S&P500 index fund, I’ll end up with only $80 profit in case of the S&P500 index increases by 10%.
My goal is to invest in the long run and this means that I would eventually hit more than that, but I’m just not there yet. So, I’m not sure if the right move now is to kill my returns with brokerage charges. That’s why I went for closing my account – it just felt right.
So, what’s next?
I thought a lot about what to do next. I know that there is a local brokerage that would allow me to register an account back with Interactive Brokers. Why would I do that mistake again? Because our local brokerage gives us far better inactivity fees.
I look at all of the fees and it feels like a good option to go in that direction and start another account through that local brokerage. The inactivity fee is $1/month, however, the transaction fees are larger, and the currency conversion rate appears more expensive. I can probably avoid the higher conversion rates by funding my account with $ instead of €, as I am buying US stocks more frequently than ETFs which I buy in €.
Another option is to wait for Degiro to open in our country. I’ve started to read about it, there are offices of Degiro here for quite some time, but that’s all. They aren’t open for business in our country, so I can’t create an account from here. Also, I’m not sure if it’s worth waiting for them without knowing what the taxes would be, etc.
Choose your brokerage wisely
By closing my IB account I lost some money apart from the $20 inactivity fee. I had to close all my positions, convert everything from $ to €, and then withdraw. Luckily, my first withdraw is free. However, I was hit by a hefty charge when the withdraw came to my bank account.
The reason for that is the fact that my bank account is in local currency and I don’t have an € or $ account. I definitely need to fix that one in the future as it might save me some taxes. Apparently, I also have to choose my brokerage wisely.
In conclusion, I think I haven’t lost more than $20-30 during that whole fiasco. Yes, I lost much more in the long run, because my money wasn’t making money for me. However, that inactivity charge was killing all of my returns, so I believe this was the right solution in my case.