Margin borrowing is a tool that may be used to meet your financial goals by using the securities in your portfolio as collateral. You can use a margin loan to purchase additional investments, or you can use the loan proceeds for purposes other than purchasing additional investments.
Using a margin strategy allows you to extend the financial reach of your portfolio investments by borrowing the money from your brokerage firm to purchase additional investments. When purchasing securities on margin, you use a combination of your own funds and the funds you’ve borrowed from your brokerage firm. All of the securities in a margin account are used as collateral for the margin loan.
It’s important to note that trading on margin involves risk. Learn more by reading our Margin Risk Disclosure Statement.
Margin Rates at Wells Fargo Advisors
As with other loans, interest will be charged on the outstanding balance of your margin loan. At Wells Fargo Advisors, the interest rate charged depends on the amount borrowed, as summarized below. An adjuster is applied to the rate based on household assets under management. (Table 2)
Base rate = 6.25%
|Margin Debit Balance
||Rate of Interest
|$0 to $24,999.99
||Base rate + 3.50%
|$25,000 to $49,999.99
||Base rate + 3.00%
|$50,000 to $99,999.99
||Base rate + 2.50%
|$100,000 to $249,999.99
||Base rate + 2.00%
|$250,000 to $499,999.99
||Base rate + 1.50%
|$500,000 to $999,999.99
||Base rate + 1.00%
|$1,000,000 to $4,999,999.99
||Base Rate + 0.50%|
|$5,000,000 to $9,999,999.99
||Base rate - 0.50%
|Unpaid Cash Account Balance
||Base rate + 3.50%, regardless of debit balance or household assets under management|
|Household Assets Under Management||Adjuster
|$250,00 to $499,99.99||- 0.50%|
|$500,000 to $999,999.99||- 1.00%|
|$1,000,000 to $2,499,999.99||- 1.50%|
|$2,500,000 to $4,999,999.99||- 2.00%|
|$5,000,000 +||- 2.50%|
Using margin as a source of funds provides several benefits:
- Competitive interest rates, which are based on the amount of the outstanding margin loan. The higher your margin balance, the lower your interest rate. Since margin accounts offer a tiered interest rate structure, you may find that a margin loan has a lower interest rate compared to other types of loans, such as home equity loans or credit cards.
- Interest is generally tax-deductible on margin loans, although the amount may be limited to investment income, which includes income from dividends and interest earned. Wells Fargo does not give tax advice; as each investor’s tax situation is different, we suggest that you consult your tax professional regarding your specific circumstances.
- Convenience of accessing your margin account anytime for any purpose.
- Easy borrowing whenever you choose. After your margin application is approved, there are no more forms to complete, no processing fees to pay, and no loan officer to meet. You can use margin right away to buy securities or withdraw funds for another purpose, although there is no obligation to borrow until you’re ready.
- Easy loan repayment. There is no standard payment schedule. As long as you keep the required margin maintenance amount in your account, you decide when to pay down your loan. The interest on the loan, based on the average daily debit balance in your account, is added to your account monthly.
To find out more, call 1-866-243-0931
Wells Fargo Advisors allows margin-approved investors to initially borrow up to 50% of the current value of the marginable equities held in their account. For example, if you currently hold $10,000 worth of marginable equities in your account, you may initially borrow up to $5,000 on margin.
Should you decide to purchase a stock by using a margin loan, you are employing a strategy known as leverage. You are using borrowed funds as a means to potentially enhance your investment return. For example:
You buy a stock on margin by putting up $5,000 and borrowing $5,000 on margin to purchase a total of $10,000 worth of shares. Suppose the stock price increases in value to $11,000 and you sell your shares. You then pay back the $5,000 borrowed and keep $6,000 for a $1,000 profit. You have made a 20% return on the initial $5,000 investment of your funds, even though the stock price has risen only 10%.
Conversely, if the stock price drops, your losses are similarly magnified. If the price dropped 10%, you pay back the $5,000 borrowed in your margin account and walk away with only $4,000 — a 20% loss on $5,000. You will also pay interest on the loan, which decreases your potential return and increases your potential loss.
Buying on margin may not be appropriate for all investors. It is appropriate only for investors who understand and are willing to tolerate the risks associated with margin borrowing.
$2,000 minimum equity is required for all margin transactions.
There are costs associated with margin borrowing, including commissions and interest.
Please read our Margin Risk Disclosure Statement carefully.
To get started or for more details, call 1-866-243-0931.