You pay margin interest once a month. It accrues on your loan balance every day you carry one, including weekends and holidays, but your brokerage posts the accumulated total as a single charge at the end of the billing cycle, typically on the last business day of the month or the first business day of the next.1Charles Schwab. What to Know About Margin The gap between daily buildup and monthly billing is where most of the confusion sits.
When the Interest Clock Starts
Accrual does not begin the moment you click buy. It starts on the settlement date, which under current rules is one business day after the trade executes.2U.S. Securities and Exchange Commission. Shortening the Securities Transaction Settlement Cycle Buy shares on a Monday without enough cash to cover them, and the broker funds the shortfall on Tuesday when the trade settles. Tuesday is day one.
The logic is simple. On trade day the transaction is agreed but no money has moved. Once settlement occurs and the broker’s cash goes out to pay for your shares, the loan is real and the meter starts running. Selling the position before settlement can avoid triggering margin interest at all, though that maneuver has its own rules around day trading.
How Daily Accrual Works
The moment you carry a debit balance, interest builds. Your brokerage takes the annual rate for your loan tier, divides it by 360 (some firms use 365), and multiplies that daily rate by whatever you owe at the close of each day.1Charles Schwab. What to Know About Margin Borrow $50,000 at 10% on a 360-day convention and the daily charge is roughly $13.89. Across a 30-day month, about $417.
The rate is not one number for everybody. Brokerages set tiered rates pegged to a benchmark, often the broker call rate, with smaller balances paying more and larger balances paying less. A $20,000 debit balance might sit at 11% or 12% annually; a balance above a million could see 6% to 8%. The tiers vary between firms.
One piece that surprises people: accrual does not pause on weekends or market holidays. Your loan balance keeps running when the market is closed. A three-day holiday weekend is three extra days of interest. Late November and December can quietly stack up more accrual days than a normal month.
Monthly Posting and What Happens If There’s No Cash
Even though interest builds every day, you are not billed daily. The full total lands once a month, usually on the last business day of the cycle, as a single line item covering every day of the preceding period.1Charles Schwab. What to Know About Margin That is the moment interest moves from a running estimate to a realized expense on your ledger.
If the account holds enough free cash, the brokerage deducts the charge automatically. A $500 cash balance absorbs a $200 interest posting with no action from you. Your debit balance stays the same, your cash drops by $200, and nothing else changes.
When there is no cash to cover the posting, the unpaid interest gets added to your existing loan balance. Owe $10,000 with $100 in monthly interest and no cash on hand, and your new debit balance is $10,100. Next month’s daily calculations run against $10,100, not $10,000. That is compounding, and it is the mechanism that makes margin debt expensive over long holding periods. In any given month the difference looks small; across a year of carrying a large balance, it stops looking small.
For cash-method taxpayers, which is most individual investors, the monthly posting date is also what determines the tax year for the expense: margin interest is deductible in the year you actually pay it, not the year it accrues.3Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
What You Owe When You Close a Position
Selling securities to pay down a margin loan applies proceeds in a set order. Principal first, then any interest accrued since the last monthly posting. Sell $50,000 of stock against $40,000 of principal and $300 of stub-period interest, and you walk away with $9,700 in cash.
The accrued piece is the one people forget. Because interest only posts once a month, there is almost always a sliver of unpaid interest sitting between the last posting date and the day you close. Your brokerage calculates that stub and pulls it from the sale proceeds. On a large balance, even a few days can add up.
Transferring an account to another broker through the Automated Customer Account Transfer Service follows the same logic. Once the transfer starts, your old firm freezes the account and moves assets, a process that typically takes up to six business days.4U.S. Securities and Exchange Commission. Transferring your Brokerage Account – Tips on Avoiding Delays Interest that accrues between the request and the final movement stays your responsibility at the old firm.5FINRA.org. 11870 Customer Account Transfer Contracts Expect a small residual charge or a final deduction from whatever cash is left after the main assets move. Ignoring that leftover can lead to collection notices months after you thought the old account was closed.
Keeping the Bill Down
The cheapest margin loan is the smallest one held for the shortest time. Many investors open a margin position expecting to hold it for a few weeks and end up carrying it for months. Every extra day is a charge, weekends and holidays included.
Keeping cash in the account specifically to cover the monthly posting prevents capitalization. Once interest starts building on prior interest, the effective cost rises even if the stated rate has not changed. Letting $100 per month capitalize for a year does not just cost an extra $1,200; each addition then earns its own interest, which pushes the real figure higher.
Rates are worth shopping. The spread between the cheapest and most expensive brokerages for the same loan size can run several percentage points. On a $100,000 balance, a two-point difference is $2,000 a year. Compare the full tiered schedule, not the headline rate, because the tier that applies to your actual balance is the only one that matters.
One boundary worth naming: none of this applies to IRAs. Federal tax law treats borrowing inside an IRA, or pledging IRA assets as collateral, as a prohibited transaction, so traditional margin loans do not exist in retirement accounts.6Office of the Law Revision Counsel. 26 US Code 4975 – Tax on Prohibited Transactions Some brokerages offer “limited margin” in IRAs, but that lets you trade with unsettled funds; it does not create a debit balance and it does not accrue interest.