What Is MTD Interest (How I Ended Up With Negative MTD Interest)

I am still new to InteractiveBroker since April 2020 and learning all the different charges to my margin account. 

I realized I had a negative MTD Interest of $125 and wonder what is MTD interest? MTD Interest stands for Month-To-Date Interest and consists of 3 components, interests earned or lost from your cash, interest earned from lending your shares to short-sellers, and interests owed from your borrowing of cash. Do note that some cash like Euros has a negative interest rate beyond a cut-off amount. Your Net Asset Value and type of IBKR account (Pro or Lite) also affects the interest rates.

Rather than go through the complex calculations, I will break down the 2 reasons for either positive MTD interests or negative MTD interests to let you read particular to your case.

Both positive and negative MTD interests happened to me over a few months. While the replies from IBKR were correct, they were very not satisfying for someone who liked specific numbers. Therefore, I went to research more myself.

Why MTD Interest Is Positive

Firstly congratulation to you have a few extra dollars that were unexpected.

Given the low-interest environment, this is usually not the case so I think you should be happy.

The reasons you have positive MTD interest are:

• Your cash balance earns Interest within IBKR. Different currencies have different interest rates with Turkish lira (TRY) above $60,000 earning 5% and South African Rand (ZAR) above 150,000 earning 2.945% currently as of 30 October 2020. Find the latest rates at https://www1.interactivebrokers.com/en/index.php?f=46385 
• The rates are higher if you are using an IBKR Pro account and have a Net Asset Value over 100,000 USD.
• You signed up for the "Stock Yield Enhancement Program" and IBKR lent your fully-paid stocks or "excess-margin" stocks (stocks held on margin but whose market value exceeds 140% of your margin debit balance) to short-sellers. It is automatic and there are no notifications when it happened.

Regarding Stock Yield Enhancement Program, I was a bit worried with the 1st condition below and did not sign up during my registration. Nevertheless, I signed up eventually thinking it should be fine. See below for the more concerning conditions, in exchange for having a paltry interest:

• The Securities Investor Protection Act of 1970 may not protect shares loaned out. This is why under SEC rules IBKR must provide you with cash collateral in the same amount as the value of your shares to protect you in the very unlikely event that the stock is not returned to you.
• Shares loaned out are typically used to facilitate short sales. Shares are attractive in the stock loan market because other traders want to borrow and sell them short, possibly affecting the value of the shares.
• Voting rights go to the borrower. During any period in which your securities are loaned out, you will forfeit your right to vote those shares by proxy.

I started with positive MTD interest, having transfer my cash into IBKR but eventually end up in negative MTD interest which started my research and asking IBKR (why think too much when you got extra money?)

Why MTD Interest is Negative

I have been getting negative MTD interest of around -$125 USD in my account which is around 1% per year. That was alarming to me!

If you only have a cash account, it would be even more worrying. I have a margin account so it was more reasonable to think that was the cost to borrow cash to invest.

I suggest checking with IBKR directly and wait for answers. Do not expect them to give you the breakdown and you would just get simple answer.

Below are the reasons I know that can lead to negative MTD interest:

• if you have cash in currency with negative interest rate. I did not know about this as I would think my money is just 0% interest rate at most like a bank. Instead, your free cash will end up negative interest rate if you put it beyond their threshold in negative interest currencies. Find full list here https://www1.interactivebrokers.com/en/index.php?f=46385
• Remember to convert your currency accordingly, especially when currency have 0% interest, as I didn't not realized that the interests is based on each currency rather than the overall cash (meaning having negative 10K in USD and 10K in HKD means you get 0% interest in HKD and margin interest on USD, rather than the 10K in HKD offsetting the USD amount). There is a currency conversion fee but definitely worthwhile in the long run.
• If you have margin account, you are likely to use it without knowing much like me. Have buying power is not equivalent to having money. You will overspend and end up into margin lending. Using IBKR Pro will have better margin rates than IBKR Lite too. https://www1.interactivebrokers.com/en/index.php?f=46376

Conclusion

After going through all these, I figure that is how IBKR make money, they give you lower interest or even negative interest (around -1.5% from their benchmark rate) and charge you margin interest (around +1.5% from their benchmark rate).

While they are transparent about the rates, it would be better if they have a breakdown of the MTD interest in the monthly report. You could see your stock being borrowed if you looked hard enough but I think there is no easy way to figure the interest rates of cash balances which is a bummer. 

Nevertheless, there is no perfect platform. Choose one you liked and just figure out all the charges to make sure you are not overcharged.