Margin Loans: Borrow Against Your Stock Portfolio
Margin loans (also known as Lombard loans) are an interesting and powerful construct that most private investors aren’t aware of. They allow you to borrow money using your portfolio as collateral. Thanks to this guarantee, the interest rates you’ll pay can be much lower than other types of loans. Margin loans are similar to mortgages: in both cases you have a secure asset (house or stocks) as collateral for the bank, which allows them to offer lower interest rates than unsecured consumer credit.
Why Would You Need a Margin Loan?
Margin loans don’t allow you to get more money than you already have. The absolute maximum you’ll be able to borrow is typically 50-85% of your stock portfolio value (depending on the broker and assets). So why would you take on a loan and pay interest on it if you could just sell your stocks? The reason is simple: opportunity cost.
If your portfolio averages a 7% annual return, but you only pay 2% interest on a loan, you effectively gain 5% annually by using a margin loan instead of liquidating your assets. Even better, the interest paid on the loan can be deducted from your taxable income as debt interest. Most other countries have capital gains tax where you’ll have to pay taxes when selling stocks. With margin loans you won’t have to sell, so no capital gains taxes. But since Switzerland has no capital gains tax for private investors, this advantage doesn’t apply here.
Another big advantage is the reduced paperwork. The broker doesn’t care about your creditworthiness, how much you earn, or your employment status. As long as you have the assets in your brokerage account, you qualify.
So margin loans sound like a great deal, right? They are, but they don’t come without risks. Your loan cannot exceed a certain percentage of your portfolio value (the loan-to-value ratio). Let’s say the limit is 75%: if you take out a CHF 50,000 loan on a CHF 100,000 portfolio and the portfolio’s value decreases to CHF 66,000, your loan now exceeds 75% of the portfolio value. If that happens, the broker has the right to force-sell your stocks to pay back the loan (this is called a margin call).
Overview: CHF Margin Loan Conditions
Here’s a quick comparison of the three brokers for CHF loans:
| Interactive Brokers | Saxo Bank | Swissquote | |
|---|---|---|---|
| CHF Interest Rate | 0.75% - 1.5% | 1.0% - 2.0% | 3.0% |
| Max Loan-to-Value | ~50% (stocks) | Up to 95% | Case-by-case |
| Margin Call | Liquidation at 75% | Warning at 75%, liquidation at 100% | Case-by-case |
All three brokers allow you to withdraw borrowed funds to an external bank account. This is the critical feature for using margin as a liquidity tool rather than for leveraged trading.
Interactive Brokers
Interactive Brokers offers the lowest borrowing costs by a good margin. They use a tiered system where larger loans get better rates. The rate is calculated as a benchmark (SARON for CHF) plus a spread that decreases with loan size:
| Loan Amount (CHF) | Interest Rate |
|---|---|
| 0 - 90,000 | 1.5% |
| 90,000 - 900,000 | 1.0% |
| 900,000+ | 0.75% |
The rate they charge can be adjusted at any time for any reason, so there’s no guarantee the rate will remain constant. Keep in mind that these rates only apply to IBKR Pro, not Lite. But only Pro is available in Switzerland, so all Swiss investors will be on that plan.
Conditions
IBKR allows you to borrow up to 50% of your portfolio value initially. But your loan can never exceed 75% of your current portfolio value. If this happens, positions will be automatically liquidated. Not all securities qualify as collateral. Penny stocks, very small caps, and newly IPO’d stocks (first 30 days) are excluded or will be counted at reduced value.
Saxo Bank
Saxo Bank’s margin product is explicitly called a “Lombard Loan” and is designed for the liquidity use case. They charge flat rates that depend on your account tier:
| Account Tier | Requirement | CHF Interest Rate |
|---|---|---|
| Classic | Default | 2.0% |
| Platinum | CHF 200,000 deposit | 1.5% |
| VIP | CHF 1,000,000 deposit | 1.0% |
Saxo Bank reserves the right to adjust the interest rate at any time without notice.
Conditions
The loan-to-value ratio you can achieve depends on how risky your assets are. With the lowest risk assets you can borrow up to 95%, but higher risk assets might not qualify at all. The only way to find out what percentage applies to your specific portfolio is by having your assets with Saxo and checking their Lombard loan menu. But I wouldn’t recommend going anywhere near 95% loan-to-value anyway.
Saxo is more generous with their liquidation policy compared to IBKR. You’ll receive a warning at 75% utilization asking you to transfer funds into Saxo to improve your equity position. Only at 100% will your assets be automatically liquidated.
Swissquote
Swissquote charges a flat 3.0% for CHF margin loans. There are no volume discounts or tiered pricing. For a CHF 200,000 loan, you’d pay CHF 6,000 per year - more than double what IBKR charges and 50% more than Saxo’s Classic tier. Swissquote reserves the right to adjust the interest rate at any time without notice.
Conditions
Unlike IBKR or Saxo, Swissquote doesn’t provide any information on loan-to-value limits. They’re assessed on a case-by-case basis depending on the risk profile of your portfolio. The same goes for margin call mechanics.
Conclusion
Interactive Brokers offers the best interest rates across the board. But Saxo Bank’s rates aren’t bad either. So unless you’re willing to switch brokers or are considering huge loan amounts, I recommend sticking with whichever broker you’re already using. While IBKR has the better rates, Saxo Bank has higher loan-to-value limits for secure assets. Although I’d never recommend using such aggressive ratios anyway.
Swissquote is hard to recommend for margin loans. The 3% rate is uncompetitive and the loan-to-value ratio is non-transparent.
In terms of when margin loans make sense, they can be great if you want to make an expensive purchase where another type of loan would be more expensive. A great example is a car where you might pay 4% interest on financing, in which case a margin loan is much cheaper. Another example is the down payment for a house mortgage.
But no matter what, it’s very important to manage the risks associated with margin loans. Don’t take out more than 20% of your portfolio value as a loan, and never take out margin loans based on volatile assets such as a single stock, which is much more likely to decline sharply than a broad ETF.