Brokerage Firms and Rates

The interest rate is the sum of (a) a benchmark rate that can change daily plus (b) a spread. For US loans, the most common benchmark is the SOFR - Secured Overnight Financing Rate. The SOFR^$†$ is replacing LIBOR as the standard benchmark across many adjustable rate loans, under the transition the Alternative Reference Rates Committee ran at the New York Fed. The spread, or margin, is the extra interest charged on top of the benchmark rate. As you increase your collateral with brokerages, they often lower this spread.

Clear up one persistent misconception before you shop. Margin proceeds are not trapped inside the brokerage account: at Schwab, Fidelity, E*TRADE, and IBKR alike you can wire a margin draw out and spend it on a kitchen remodel. What Regulation U actually polices is the purpose of the credit, not its destination — credit used to buy or carry margin stock is “purpose credit” and carries the Reg T/Reg U machinery and a purpose statement (Form U-1 or T-4), while credit used for anything else is non-purpose credit. The restriction runs the other direction from what most people assume: it is the SBLOC that is contractually barred from buying securities, while the margin loan is the one that may. Two constraints govern a withdrawn margin balance: the draw still counts against your maintenance requirement exactly as if it were invested, so withdrawing cash raises your effective leverage without adding collateral, and interest on money spent personally is non-deductible personal interest no matter what secured it (section “Interest Tracing: How Loan Use Determines Deductibility”). Both Interactive Brokers (IBKR) and Charles Schwab calculate interest using SOFR, which tracks the Fed funds target. SOFR moves a lot: it sat at 0.05% in January 2022, climbed past 5% across 2023–2024 as the Fed tightened, and has eased back from those peaks as the Fed cut through 2025 into 2026. Treat any specific rate quoted in this book as a dated snapshot — look up the live print on the New York Fed page before sizing an ABL strategy.

Interactive Brokers (IBKR)

Consistently the tightest spread in the retail market with benchmark-tracking margin rates. IBKR margin functions as an unconstrained general-purpose credit facility against your liquid portfolio. When execution speed matters, IBKR provides the most efficient retail borrowing mechanism.

Charles Schwab PAL ( Pledged Asset Line)

(not their margin loan). The spreads listed are higher than those offered by IBKR but are more favorable than the standard margin rates from many brokerages, including Schwab’s own margin accounts. PAL loans, interestingly, do not have a fixed maturity date as of 2024. This means you can use PAL loans for long-term financial commitments, such as a down payment on a property, which might not be liquidated for many years or even decades. Setting up a PAL account with Schwab, transferring funds, and getting approval typically takes between 3 to 6 weeks. A useful tip is to negotiate with Schwab for lower PAL rates by mentioning a competitive offer from IBKR. Persistence is key here, and your chances of securing a reduced interest rate generally improve with the amount of collateral you offer. Expect to need at least $100,000 USD to be considered for serious negotiation.

When evaluating the spread you receive, keep it in context and don’t solely compare it to IBKR’s rates. A spread of 3% is quite favorable; 2% is outstanding; and 1.25% is exceptionally good.

Merrill Lynch Loan Management Account (LMA)

. Some but not all details — the $100,000 minimum facility, the uncommitted demand feature, the breakage fee on fixed-rate advances — are here. Rates are not published; the rest lives in the credit agreement, so ask for it before signing.

• No fees to setup, no annual fee, no minimum balance
• No set term, balance or minimum draws on variable rate loans.
• LMA loans are an “uncommitted facility”. My interpretation is the lender can change the rules at any time, including in theory demanding payment.
• You can get committed loans (with guaranteed fixed terms) for less than $100K. Though it appears they terminate any commitment at any time (which seems to negate the benefits of a committed loan.)
• Minimum collateral of $100K.

M1 Borrow against your investments

. Minimum investment of $2K; borrow up to 40% of your assets. Spreads sit between IBKR’s and the big brokerages’ and shift with M1’s product tiers — check the current schedule.

Wealthfront

Portfolio Line of Credit Minimum account size is $25K; borrow up to 70% of your assets. The spread steps down with balance — roughly a point of improvement above $1M — and is published, not negotiated; check the current schedule.

Opting for a low-interest, asset-backed loan can be your smartest move when planning a significant “purchase”. This approach often outperforms paying in cash, provided certain conditions are met:

1.

The purchase has to be quite large, probably at least $50K, so that using an ABL is worth the effort. Example purchases are the down payment for a home, school/tuition payments, paying large medical bills, or purchasing a new car.

2.

You have to have assets in an ABL of at least 2X the purchase amount — build up these assets over time.

3.

An ABL can only use non-sheltered money, thus you need to build up assets outside of your 401(k), IRA, HSA and 529s.

If the return on your assets exceeds the interest rate on your ABL, then an ABL is a smart move. Significant assets qualify for lower spreads, and because you are not selling, you defer capital gains taxes — permanently, if you hold to the step-up (section “Buy, Borrow, Die in Retirement”).

Asset-backed loans raise your financial flexibility while leaving the portfolio intact to keep compounding. Model the borrowing costs and margin call thresholds carefully to ensure this leverage remains a strategic asset, not a liability.