Margin interest is what your brokerage charges you for borrowing against your investment account to buy more securities. The rate is quoted annually but applied daily to whatever you owe, and most investors currently pay somewhere between 7.5% and 12% depending on how much they borrow and which firm holds the account. The loan is secured by the securities in your account, which means the broker has a direct claim on your portfolio if things go wrong.
How the Rate Is Built
Every margin rate has two parts: a base rate the firm sets internally, and a spread the firm adds on top. The base tends to track broader interest rate benchmarks, and many brokers anchor theirs to the federal funds rate or the prime rate. Both of those move when the Federal Reserve adjusts monetary policy.1Board of Governors of the Federal Reserve System. What Is the Prime Rate, and Does the Federal Reserve Set the Prime Rate? As of January 2026, the federal funds rate sits at 3.5% to 3.75%.2Board of Governors of the Federal Reserve System. FOMC Minutes, January 27-28, 2026
The spread is where brokers differentiate. It can be positive or negative depending on how much you borrow. At Fidelity, a client with less than $25,000 in margin debt pays the base rate plus 1.25%, while someone borrowing over $1 million gets the base rate minus 3.075%.3Fidelity Investments. Trading Commissions and Margin Rates That gap runs over four percentage points annually, a meaningful cost difference on a large portfolio. What matters when comparing firms is the total effective rate you actually pay, not which benchmark the broker references.
How the Daily Charge Is Calculated
Brokers calculate interest daily on your outstanding debit balance. The formula: take the annual rate, divide by the number of days in the year, and multiply by what you owe that day. Most firms use a 360-day year rather than 365. That produces a slightly higher daily rate, so you pay a bit more over a year than the stated annual percentage might suggest.
An example makes it concrete. Say you carry a $50,000 margin balance at a 10% annual rate on a 360-day basis:
- Daily rate: 10% ÷ 360 = 0.02778%
- Daily charge: $50,000 × 0.0002778 = $13.89
- Monthly cost over 30 days: about $416.67
Run the same numbers on a 365-day year and the daily charge drops to $13.70, a difference of roughly $6 a month. Small on any single bill, but the effect compounds on large balances held for years. Check your brokerage agreement to see which convention your firm uses.
The balance the firm applies each day is typically the closing debit after all trades and settlements clear. Deposit cash or sell securities during the day and that day’s interest falls. Buy more on margin and the daily charge rises from that point forward.
When the Charge Hits Your Account
Interest accrues daily but posts once a month, usually on the last business day of the billing cycle.4Charles Schwab. Margin Requirements and Interest Rates There is no separate bill to pay. The accrued interest gets added directly to your margin debit balance.
That is where compounding quietly works against you. Each month’s interest becomes part of the balance next month’s interest is calculated on. On a $100,000 margin loan at 10%, the first month’s interest is roughly $833. That gets rolled into the balance, so month two’s interest is calculated on $100,833. Over a year, this effect adds approximately $50 to $80 beyond a simple interest calculation on a six-figure balance. Held for several years, the compounding becomes considerably more noticeable.
Some brokers offset this by netting idle cash in your account against the margin balance. If you have $20,000 in cash and $50,000 in margin debt, the firm charges interest only on the $30,000 difference.5Investor.gov. Investor Bulletin: Interested in Margin? Understand Interest Not every firm does this automatically. Ask how yours handles cash balances alongside margin debt, because leaving cash sitting in a sweep account while you carry margin debt is essentially paying interest on money you already have.
What Determines Your Specific Rate
The biggest factor is how much you borrow. Brokers use tiered pricing schedules where the rate drops as the loan balance grows. At Schwab, someone borrowing under $25,000 currently pays an effective rate of 11.825%, while a client with $250,000 or more in margin debt pays 10.075%.4Charles Schwab. Margin Requirements and Interest Rates Fidelity’s schedule is similar, with rates dropping as low as 7.50% for balances above $1 million.3Fidelity Investments. Trading Commissions and Margin Rates
Three other factors shape what you pay:
- Federal Reserve policy. When the Fed moves its target rate, broker base rates tend to follow, so today’s tiers already reflect the current 3.5% to 3.75% fed funds rate and will shift with future changes.2Board of Governors of the Federal Reserve System. FOMC Minutes, January 27-28, 2026
- Your relationship with the firm. Clients with large total assets or those in wealth management programs can often negotiate a lower spread. It isn’t advertised, but it happens regularly at full-service brokerages.
- Account type. Portfolio margin accounts calculate requirements based on the overall risk of your combined positions rather than security-by-security, which can allow more borrowing power against the same collateral. That doesn’t lower the rate itself, but it can push you into a higher balance tier where the rate is lower.6FINRA. Margin Regulation
Rates also vary meaningfully between firms. Discount and online brokers that compete on cost may offer lower base rates than full-service firms. Comparing before you commit can save a full percentage point or more.
How Margin Calls Interact with Interest
A margin account must always hold enough equity to satisfy minimum maintenance requirements. FINRA requires at least 25% equity relative to the market value of the securities held on margin, and most brokers set their own house requirement higher, commonly 30% to 35%.7FINRA. 4210 – Margin Requirements
If your equity slips below that threshold, the broker issues a margin call demanding cash or additional securities. This usually happens when your holdings fall in value, but interest charges can also push you over the line. Hovering near the maintenance level, a month’s worth of accrued interest rolling into your debit balance can be enough to trigger the call.
What catches many investors off guard: brokers can sell your securities to meet a margin call without contacting you first and without letting you choose which positions get liquidated. In a fast market the firm has every incentive to move quickly to protect its loan, and it may sell your most liquid holdings regardless of tax consequences or which positions you wanted to keep. The SEC warns explicitly that you can lose more than you originally invested in a margin account.8Securities and Exchange Commission. Investor Bulletin: Understanding Margin Accounts
Can You Deduct Margin Interest on Your Taxes
Margin interest is deductible as investment interest expense on your federal return, with meaningful limits. You have to itemize on Schedule A for the deduction to do anything, and you have to file Form 4952 to calculate the allowable amount.9Internal Revenue Service. Form 4952, Investment Interest Expense Deduction
The deduction is capped at your net investment income for the year. Net investment income covers interest, ordinary dividends, short-term capital gains, and certain other investment income, minus investment expenses. Pay $15,000 in margin interest but earn only $10,000 in net investment income, and you deduct $10,000 this year and carry the remaining $5,000 forward to future tax years.10Office of the Law Revision Counsel. 26 USC 163 – Interest
Qualified dividends and long-term capital gains don’t count as investment income by default because they’re taxed at lower rates. You can elect to include them, which raises your deductible limit, but those dividends and gains then lose their preferential rate and get taxed as ordinary income.9Internal Revenue Service. Form 4952, Investment Interest Expense Deduction The election only makes sense when your ordinary rate is low enough that the extra interest deduction outweighs the lost tax benefit. Run the numbers both ways first, since revoking the election later requires IRS consent.
What the Interest Cost Does to Your Risk
Margin interest works in one direction: against you. Your investments have to earn enough to cover the interest before you see a real return. At a 10% margin rate, a position funded entirely with margin debt has to appreciate more than 10% annually just to break even after interest, and that is before taxes and fees.
The breakeven hurdle becomes far more dangerous in a falling market. If your holdings lose value you still owe the full loan balance plus accrued interest. A 30% decline in a fully margined portfolio doesn’t just cut your equity by 30%. It cuts your equity by roughly 60%, because the loan stays fixed while the collateral shrinks. Several months of interest on top makes the math worse.
The SEC’s guidance is blunt: you can lose more than you invested, you may need to deposit additional funds on short notice, and your broker may sell your holdings without consulting you.8Securities and Exchange Commission. Investor Bulletin: Understanding Margin Accounts Margin interest reduces returns when things go well and accelerates losses when they don’t.