A decade ago, buying stocks, bonds, ETFs, and investment funds was really expensive and only accessible for high-net-worth individuals. Thanks to online discount brokers such as Degiro, investing is now affordable for everybody. Online brokers allow investors to purchase financial products almost for free and, most importantly, do not have fixed costs that will eat away your returns. Degiro is one of the biggest discount online brokers in Europe. In this article I will review the Degiro broker by discussing the following topics:
- Degiro Review: What is Degiro and What is a Broker?
- Degiro Fees
- Degiro Basic vs Custody
- Degiro’s Available Products (Including Free ETF Selection)
- Is Degiro Safe?
- What is the Difference Between Flatex and Degiro?
- Is Degiro Worth It?
Degiro Review: What is Degiro and What is a Broker?
Degiro is an online discount broker. A broker allows you to buy and sell financial products such as bonds, stocks, (index) funds, ETFs, and derivatives. These financial products are usually traded in a stock exchange, and a broker is the intermediary needed to execute transactions in financial markets. Degiro is an online broker that you can use to trade financial products on most stock exchanges. It is 100% online which allows big savings on operational costs and, therefore, the prices for executing transactions and the fees in general are much lower than traditional brokers.
Where is Degiro Based and Who Can Use It?
Degiro is a Dutch broker, and it is available in 18 European countries as you can see in the image below. People living in any of these countries can use the Degiro broker.
I am not a financial advisor, and this article is not intended to give any financial advice. The information in this article is for educational purposes only. Please contact a qualified financial advisor if you are looking for financial advice.
Fees are probably the most important factor when choosing an online broker. For this reason, I will start this Degiro review by analyzing the fees that they charge their customers. Degiro offers extremely low fees on all financial products, there is even a selection of ETFs that can be bought and sold for free every month! Let’s now take a look at the different fees that Degiro charges.
Degiro Service Fees
Service fees are probably the most annoying things a broker charges. They are charged by a broker to keep your portfolio. You usually pay a percentage of your portfolio for this. Most traditional brokers charge service fees and they are usually somewhere between 0.1 and 1% of the value of your portfolio per year. Service fees can have quite a big impact on your return, so choosing a broker with low service fees is essential to achieving good financial results.
Degiro does NOT charge service fees for stocks, bonds, and exchange traded funds (ETFs) but charges a 0.2% per year service fee for non-exchange traded funds. This means that if you plan to buy funds with Degiro, it is smarter to purchase ETFs rather than traditional funds as you will not pay any service fee!
Degiro Exchange Connection Fees
Financial products are sold on financial exchanges. As I already mentioned, a broker such as Degiro will connect you to an exchange to trade financial products. Degiro charges a very small fee to connect you to most exchanges. However, there is one exchange where you can trade financial products without paying connection fees. This exchange exempt from connection fees depends on your location. Normally, the free exchange is the exchange in your own country. For example, this would be the Irish Stock Exchange if you are based in Ireland or the Amsterdam Stock Exchange if you are based in the Netherlands. You can check what your free exchange is by going on the homepage of Degiro for your country.
Degiro Exchange connection fees for other exchanges are just EUR 2.5 per year per exchange. Remember, this is the total cost per year, not per stock or product you own in the exchange! This means that if you have 20 different stocks or bonds on the same exchange you will only pay a total of EUR 2.5 per year. In the case that you have twenty different stocks on one stock exchange and one stock on another stock exchange, then you will have to pay a total of EUR 5 per year.
As demonstrated above, Degiro Exchange Connection fees are extremely low and almost negligible, also for small investors.
Degiro Transaction Fees
Degiro has no service fee for most of its products. But what about transaction fees?
Degiro has very competitive transaction fees and some products can even be bought completely for free once a month! Let’s take a look at Degiro’s fees in 2021.
ETF Transaction Fees Degiro
Well, let’s start with the good news. Degiro has a list of hundreds of ETFs that can be bought or sold for free once a month! This list is called “Degiro Free ETF Selection” and there is no catch. Buying or selling these ETFs really is 100% free once a month! You can find the details on Degiro’s website.
Degiro Accounts: Basic vs Custody
We just explained the fees that you are charged with a Basic Degiro account. However, Degiro does not just offer the basic account, but also a custody account. I will now explain the difference between these two accounts in terms of fees, safety, and features.
What is the Main Difference Between Basic and Custody Accounts?
The main difference is that if you have a basic account, Degiro can lend out your securities. If you have a custody account, Degiro cannot lend them out. I will explain more about asset segregation and lending out securities later in this article, when I answer the question “Is Degiro safe?” To summarize, a custody account is slightly safer than a basic because securities are not lent out, but both Degiro asic and custody accounts are really safe. Lending out securities is an activity that most brokers and investment funds do to earn money and keep fees low. Degiro is one of the few brokers that clearly informs its clients about this, which is admirable.
If you open a custody account, Degiro will not be able to earn from securities lending. To compensate for this, Degiro also charges dividend fees to customers that choose a custody account.
Extra Dividend Processing Fees for the Degiro Custody Account
Dividend processing fees are only charged to Degiro custody accounts. The fee is equal to EUR 1 +3% of the dividend that you will receive. Note that the amount is maximized to 10% of the dividend. This means that if, for example, you receive 5 euro dividend, the dividend processing fee will only be EUR 0.5.
This dividend processing fee makes Degiro custody remarkably more expensive than the Degiro basic account. However, if your investments do not distribute dividends, a custody account will not be more expensive than a basic account.
For example, if you invest in accumulating ETFs, your dividends will be automatically reinvested in the fund and you will therefore not be charged any dividend processing fee. The same goes for stocks of companies that do not redistribute profits.
Can I Open Both a Custody and a Basic Degiro Account?
Yes, if you want to you can open both a custody and a basic Degiro account. By doing this, you can put investments that do not distribute dividends in your custody account and other investments in a basic account. However, as having two accounts increases complexity, I would recommend you to contact a qualified financial advisor and discuss the pros and cons of having two accounts to minimize costs and risk.
Products Available on Degiro: Stocks, ETFs, Funds, Bonds, Derivatives and More
Now you know that Degiro is an extremely low-cost broker that you can use to purchase financial products. The next step is to learn which financial products you can buy using Degiro.
Degiro offers the following financial products:
- Stocks (shares)
- Investment funds
- Leveraged products
Degiro allows you to buy these products from many different stock exchanges all over the world. You can find the full list of the available stock exchanges on Degiro’s website.
Degiro Margin Credit (Debit Money)
Margin credit is a secured line credit that uses your portfolio as collateral for loans. This is also referred to as “borrowing on margin”. Degiro offers a margin credit service called “Debit Money”. Margin rates at Degiro are among the lowest on the market, starting at a variable yearly rate of 1.25%. Debit Money is only available for Active, Trader and Day Trader profile types. If you have a Degiro basic account, you can easily upgrade to an Active account for free after doing a knowledge quiz.
Note that borrowing money on Margin involves risk. Make sure you understand these before borrowing on margin. You can find more information on Degiro Debit Money on the official website.
Is Degiro Safe?
When choosing a broker, knowing that your money is safe is probably the most important factor. When reviewing the safety of a broker like Degiro, there are two important factors: how protected your money is if the broker has financial issues and how good the cybersecurity of their website and app is. Keep in mind that I am not a financial advisor and I always recommend you read the information available on degiro.com and ask your financial advisor if you have doubts.
You can use Degiro through the official website or from the Android and iOS app. Degiro offers the possibility of two-step verification via the Google Authenticator app. To maximise the safety of your account, I would really recommend activating this function. This just takes a few extra clicks to implement but will make your Degiro account even safer.
Passwords and two-step verification are not the only safety feature that Degiro offers to protect you from Cybercriminals. In fact, you are only allowed to send money from Degiro to a verified bank account which is in your name. This makes it very difficult for cybercriminals to steal money from your Degiro account
Are my Investments Safe with Degiro?
Degiro is a Dutch broker and, as such, it is regulated by the “Netherlands Authority for the Financial Markets” (AFM) and the “Dutch Central Bank” (DNB). The Netherlands is a well-developed and very stable country. Therefore, the AFM and DNV are considered top-class financial regulators. You can therefore rest assured that Degiro is controlled by a good financial market authority.
Based on Dutch regulations, Degiro keeps clients’ assets in a separate entity. This means that in the unlikely case that Degiro goes bankrupt, your assets would not be used as recoverable assets by Degiro’s creditors. This is called “asset segregation” and, in simple words, this means that if Degiro goes bankrupt, you should be able to transfer your securities to another broker without losing anything.
What About Security Lending?
As previously mentioned, when you open a Degiro Standard account, Degiro is allowed to lend out your securities to allow other users to short sell. This is a common practice and most Brokers and ETFs do it themselves. However, it might expose you to the additional risk of losing your lent out securities. According to its website, Degiro mitigates this risk very well:
“- Firstly, DEGIRO (and not the borrowing party) is the ‘counterparty’ and therefore guarantees the timely return of the lent assets with its own equity.
– Furthermore, DEGIRO requires security from the borrowing party. This is provided by the right of pledge that DEGIRO has on the balance of that client and the borrowed assets are included in the continual risk monitoring of DEGIRO.
– Damage for a client whose assets are lent therefore arises only at the moment when both the borrowing party and DEGIRO are no longer able to meet their obligations (i.e. are bankrupt) and the value of the asset has fallen or the value of the Lent Securities has risen. The amount of the damage is limited to the difference in value between the Lent Securities and the security provided by the borrower.”
By looking at this, it is clear that the risk of losing your money because of security lending is very well mitigated by Degiro, and therefore very limited. However, if you really would not like Degiro lending out your securities, you can always accept slightly more fees and open a custody account.
Is my Cash Balance Safe on Degiro?
We have just explained the security of a Degiro account, but what about your cash balance? They also work to keep that really safe. Degiro has just recently been bought by Flatex, a well-established German broker. Why do I mention this? Because before that, Degiro was not allowed to keep your cash balance itself and so it would keep it in Money Market Funds. These are simply well diversified high-rating short-term bonds and other liquid financial products which behave pretty much the same as cash. You can find out more about Money Market Funds from investopedia.
Now that Degiro is part of the Flatex group, some customers depending on their home country will have their cash balance stored in a Flatex bank account instead of a Money Market Fund. Degiro always makes it very clear which, so you can see in your account statement where your cash balance is being held. A Flatex bank account is also really safe because Flatex is a German bank and as such is covered by the “Protection Scheme of German Private Banks” (EDB). This protection scheme covers up to EUR 100,000 per client in case it goes bankrupt. You can find more information on the official EDB website.
What is the difference between Flatex and Degiro?
The Flatex Degiro Group
I have just mentioned that Degiro was recently bought by Flatex. Degiro is therefore now part of the Flatex Degiro group, and this is now one of the biggest discount brokers in Europe. The Flatex Degiro group is quoted on the stock market as flatexDEGIRO AG. As a company on the stock market, it must publish financial information and be very transparent with its investors. This can be viewed as an extra layer of safety for your Degiro or Flatex account. You can find more information about the Flatex Degiro Group on the official website.
Can I Open a Flatex Account Instead of a Degiro Account?
Although Degiro and Flatex are part of the same group, they still offer separate brokerage accounts. Therefore, a Flatex account has different prices and services to a Degiro account. It is also important to note that, when Degiro is available in 18 different European countries, Flatex is only available in Germany, Austria and the Netherlands. Generally speaking, a Flatex account has slightly higher fees than a Degiro account but it also offers more advanced functions such as the possibility of investing automatically every month.
To summarize, Flatex and Degiro are two different brokers, but part of the same group. They offer slightly different services and fees, but they are similar enough to be considered equivalent brokers.
Degiro Review: Is Degiro Worth It?
Degiro offers great functionalities at a low price. If you are looking for an affordable European online broker, Degiro is probably one of the best options available to you!
What is the point of having a low-cost broker if you have to pay a lot of money for your bank account? If you also want to save money on banking, you can take a look at our Revolut Review!