How to use the margin loan interest cost calculator
- List the balance history, one line for each date the balance changed, with the date and the new balance.
- Enter the date interest runs through. That day is not counted.
- Enter the yearly rate and the days in a year the broker uses, or add tiered rates.
- Read the interest for the period, by month, with the average balance and effective rate.
Formula
Daily interest = balance x annual rate / days in the year
Tiered: each slice of the balance earns the rate of its tier
Effective annual rate = interest / total of the daily balances x days in the year
Return needed on your own money = interest / your own money
Each balance stays in force until the next date in your list, and the last one runs up to the end date.
$50,000 borrowed at 9% for 30 days
With a 360 day year the interest is $50,000 x 0.09 x 30 / 360 = $375.00, and the effective annual rate is 9.000%. On a 365 day basis the same loan costs $369.86.
If the balance is $50,000 for 11 days, $65,000 for 10 days and $40,000 for 9 days, the interest is ($550,000 + $650,000 + $360,000) x 0.09 / 360 = $390.00. With tiers of 11% on the first $25,000, 9.5% up to $100,000 and 8% above, the first $50,000 costs $427.08 for the 30 days.
How margin interest builds up
Borrowing from a broker to buy investments costs interest every day the loan is open. The balance changes whenever you buy, sell or deposit, so the interest is a sum of many small daily amounts. Brokers usually add it up and charge it once a month. Tiered rates mean that the first part of a balance costs more than a larger one, which is why the cost per dollar falls as the loan grows.
Interest only has to be covered by the return on the money you invested. The return needed shows how much your own money must earn just to pay the interest, before any profit.
Cautions
Brokers set their own rates, day counts and billing dates, and rates change with a benchmark, so use the terms in your account. Borrowing to invest also increases losses. This page shows arithmetic and gives no advice. See the Margin Call Price Calculator for the price at which a call occurs, the Position Size Calculator for sizing a trade, the Interest-Only Loan Calculator for a loan with no repayment, and the Trade Round Trip Cost Calculator for the cost of the trades.
Assumptions and limits
- Interest is simple, charged daily on the balance and not compounded within the period.
- A balance applies from its date until the next date in the list.
- The rates and balances shown are examples. Use your own account terms.
- Monthly amounts are rounded separately, so they may differ from the total by a cent.
Frequently asked questions
Is the end date counted?
No. Interest runs for the days from the first date up to, but not including, the end date, as a loan taken on day one and repaid on the end date would.
What does the 360 or 365 day choice do?
It sets the days in a year used to turn the yearly rate into a daily one. A 360 day year gives slightly more interest.
How do I enter the last tier?
Leave the amount blank before the comma, for example ", 8%". Every balance above the earlier limits then earns that rate.
What is the return needed on my own money?
It is the interest divided by the money you put in, which shows the gain you need just to break even on the borrowing.