My goal with this article is to use the framework I shared earlier on “How to choose a stock broker” to understand a broker, DEGIRO. This isn’t a review of DEGIRO but an overview of the things you should consider if you plan to use it.
Note that the information in this article may only be valid at the time of writing (11/12/2018). I am trying to do a thorough walkthrough so you can understand similar steps you should undertake in evaluating any broker (including DEGIRO) but that also means that many things here explained will change.
Disclaimer: I am a DEGIRO customer. This is not an endorsement of DEGIRO. This article is not supported by DEGIRO in any shape or form.
DEGIRO has one of the lowest fees you can see on the market. You can compare their fees to some of the local players through their fees page. The comparison is a piece of good marketing but keep in mind that not all comparisons may be fair. The comparisons may be excluding some services that competitor platforms provide or additional costs that DEGIRO has.
The relevant fees for a Basic Account you should be aware of are detailed in their fees schedule:
- transaction fees:
- the standard fee is 2€ + 0.03% of the transaction cost
- a few ETFs have 0 transaction fees for your first trade of the month. Note that you need to trade those ETFs in the appropriate stock exchange to get them for free. I’ve written a post where I explain which commission free ETFs I think are the best.
- custody/maintenance fees: free
- dividend processing fees: free
- exchange connectivity fee:
- DEGIRO charges you to transact on exchanges which aren’t in your “home” market
- 0.25% of your portfolio value with a maximum charge of 2.5€ per calendar year per exchange
- portfolio transfer fees:
- to DEGIRO: 10€ per position
- from DEGIRO: 10€ per position + external costs
The relevant fees for their Custody Account are detailed in their Fees Schedule. The fees are similar to the Basic Account fees with the following notable differences:
- dividend processing fees: 1€ + 3% of dividend (maximum 10%)
I detailed the fees that are important for the kind of usage I do of a broker. You should always read the fee schedule and take note of fees related to the usage you will do of a broker.
Even though DEGIRO is available in many countries it is domiciled in The Netherlands. That means that DEGIRO likely won’t take care of any tax related paperwork that is specific to your country, unlike what a local broker would do. This also means that DEGIRO likely won’t do any tax withholding, you will also have to take care of that yourself.
It is important to understand which kind of tax bureaucracy you will have to deal with due to DEGIRO and evaluate if it is worth the low fees. In some countries the paperwork will be simple, in others it will be more complex. Tax laws vary from country to country so you will have to do your own research.
Account types and limits
For the purposes of investing in ETFs, DEGIRO has two account types: Basic and Custody.
The main differences between the Basic and Custody accounts are:
- Fees – the Basic Account has lower fees
- Shares lending – the shares of a Basic Account can be lent by DEGIRO to 3rd parties. That can’t happen in Custody Accounts.
DEGIRO has put measures in place to minimize the risks related to shares lending:
- separate entities for holding clients assets (SPV – special purpose vehicle) and the rest of DEGIRO’s business (DEGIRO);
- DEGIRO being the counter-party for the shares lent towards the SPV instead of the shares borrower;
- requiring collateral greater than the shares lent.
The details about the shares lending practices can be found in their documents: Client Agreement and Investment Services Information. Keep in mind that even though those measures are in place, you are still subject to counterparty risk in the event that both the shares borrower and DEGIRO go bankrupt. You will have to do your own risk assessment to determine which type of account is more suitable for you.
Available ETFs and Stock Exchanges
DEGIRO trades on 21 major European stock exchanges.
Note that an ETF may be available in different exchanges through DEGIRO. But only some of the exchanges have free transaction fees.
My assumption is that DEGIRO provides access to most if not all of the ETFs shown on justETF.
You can only trade European domiciled ETFs in DeGiro. You won’t be able to buy ETFs like SPY, VTI, VOO due to PRIIPs regulations. There are great European domiciled alternatives to these ETFs.
Legal structure/regulatory environment
DEGIRO is accredited by The Netherlands Authority for the Financial Markets (AFM).
The Investor Compensation Scheme in the event a Dutch broker fails to meet its obligations is 20,000€, the minimum at the EU.
DEGIRO segregates clients assets to mitigate the risk of clients loosing their assets in the event of insolvency of the company. DEGIRO’s client assets are held at a separate entity, SPV, than the entity that runs DEGIRO’s business, DEGIRO. DEGIRO uses two SPVs: one to hold securities meant to be used for Derivatives, borrowed money/securities, debit money – SPV Long Short – and another for the remaining securities – SPV Long Only. More details about this arrangement can be found in the Client Agreement and Investment Services Information.
DEGIRO uses omnibus accounts to hold clients assets. These are accounts that hold assets for one or more clients, making it more cost effective for the brokers. Assets held by SPV Long Only are as safe using omnibus accounts as individualized accounts would be. But for assets held by SPV Long Short, clients within the same omnibus account are exposed to each other.
It is my understanding that all assets (except debit money) of a custody account would be held by SPV Long Only. And that part of the assets of a Basic Account will be moved between SPV Long Only and SPV Long Short as they are needed for shares lending purposes.
Holding Client Money
Investment firms from The Netherlands are not allowed to hold client money therefore, all the uninvested balance – client money – from a DEGIRO customer’s account is invested in a money market fund. These funds invest in short-term debt securities and provide liquidity while preserving capital. Yet since it is a fund it means that the value of your account may fluctuate for any uninvested capital.
Degiro uses two fund providers for these money market funds: FundShare Fund Management (for EUR, USD, GBP, CHF, SEK, NOK, and DKK) and Morgan Stanley Investment Management (for EUR, USD, and GBP).
Note that short-term debt currently has negative interest rates in many European countries (mostly the Eurozone). In addition, these money market funds have a TER. This means that some investors may observe a negative return on their uninvested capital.
Degiro compensates investors for negative returns in these money market funds for investors with EUR as a base currency:
- Up to €2,500 for the Morgan Stanley Investment Management fund;
- Up to €100,000 if you have spent more than €350 in fees in the past 60 days;
You should pay attention to which fund your cash is invested in. Compensation is only available to one of the funds. You may reach out to support to assess if it is possible to use the Morgan Stanley Investment Management fund.
Below is the formula for estimating how much money you can loose on average while your cash is uninvested:
fund_return = cash_amount - cash_amount * (( 1 + money_market_fund_yearly_return )(1/365))number_of_days
cash_amount = €1,000
money_market_fund_yearly_return = -0.49%
number_of_days = 30
fund_return = €1,000 – €1000 * ( ( 1 – 0.49/100)(1 / 365) )30 = €0.40
The example above only calculates the fund return (gain or loss), it does not account for the compensation made by DEGIRO.
You can learn more about this policy in Degiro’s page about Money Market Funds. There you can also find the latest funds’ returns. It also does not account for changes in the interest rate. If the short-term interest rate becomes positive you can actually some money.
You should avoid keeping uninvested capital in DEGIRO for too long. Any uncompensated negative return in these funds is like a fee you are paying.
Foreign currency support
By default all accounts use AutoFX. Through AutoFX all transactions are handled in your base currency (e.g. EUR). For example, if you would buy a stock in USD, the platform would automatically deduct the appropriate amount in EUR.
Alternatively you can manage foreign currencies manually. In that scheme you will be able to be credited/debit directly in the foreign currency. But you will have to still withdraw/transfer funds to DEGIRO’s bank account in EUR.
DEGIRO dubs itself an execution only broker. This pretty much sums up the service you will get. It provides you all the tools you need to trade on the stock market. There aren’t any advisory services to aid you in your investment like some full service brokers might have.
I found DEGIRO’s help center to be really complete and clear. I’ve also read reports of folks saying that DEGIRO’s customer support replies in a reasonable amount of time and with clear/helpful answers.
Additionally all their documents are clear. Their documents are mostly written in plain English and I found their language understandable for non-native speakers. Each local website will have documents in the local language.
My impression is that there is a hate/love relationship with DEGIRO. Some people love it for the low fees others are suspicious of the fees and DEGIRO’s shares lending practices.
You can read about people’s experiences in the Internet. Some examples include:
DEGIRO is available in 18 European countries. It has a local website in local language for any of the supported countries.
You can’t change the language in your local website. For example, if you sign up through degiro.de you can’t change the language from German to English.
I’ve seen reports of users joining through the degiro.ie website whenever they want to use the English version of the site. Ask DEGIRO’s customer support if you can do this. Just keep in mind that this means you will receive yearly reports in English instead of the local language of where you live which may complicate your tax submission process.
If you don’t live in one of the 18 countries supported by DEGIRO you may not be able to open an account. If you are in that situation, send an e-mail to DEGIRO customer support and ask them if you can open an account.
DEGIRO has iOS and Android apps.
DEGIRO’s web interface is OK. It is not the best interface I’ve ever used but I think not much is needed for Bogleheads like investing.
DEGIRO is one of the most popular brokers available across Europe. An alternative to DEGIRO is Interactive Brokers. Read my detailed guide on Interactive brokers.