Interactive Brokers (IB) or Standard Chartered (SC) for investing internationally?

[7days7nights]

Hi all,

One of my 2013 new year resolutions is to learn how to invest (for retirement). For the past couple months, I've been investing an average of SGD1,500/month, plus most of existing savings, via SC. This is allocated into both local and international index ETFs, at a ratio of 35% : 65%. I invest on the London Stock Exchange (LSE) for my international ETFs to avoid the US' 30% dividend withholding tax.

While SC has been good for me so far with the 0.25% commission for international trades, the exchange rate really irks me. I've found it to be consistently ~1.5 - 2%. This is a "commission/expense ratio" of SGD30 per month (i.e., 1,500 x 2%); not to mention another ~2% when I draw down on it for retirement.

While I've heard about IB for a while, it was a hassle in the past to transfer funds into an IB account–I understand that this is not the case now. Looking through past IB threads (http://forums.hardwarezone.com.sg/stocks-shares-indices-92/interactive-brokers-ib-3612315.html; http://forums.hardwarezone.com.sg/m...kers-sgd-now-available-funding-4053471-7.html, it seems IB is superior in terms of exchange rates but not commissions. However, IB is still superior overall.

Example of a monthly transaction of SGD 1,500 on LSE with SC and IB:

SC: Total cost is $33.75–0.25% commission ($3.75) + ~2% exchange rate ($30)
IB: Total cost is $13.50; minimum commission 6GBP ($12) + ~0.01% exchange rate ($1.50).


1. To confirm, the example IB transaction above would do away with the required activity fee minimum of 10 USD right? I will likely consolidate my transactions quarterly (and invest SGD 4500/quarter) though I'm not sure if the savings from minimum commissions will offset the monthly required activity fee minimum.

2. Are there other costs I've not taken into account?

3. Before I make the switch to use IB exclusively for all international trades, are there any reasons not to do so? Hoping to hear from those with experience.

4. Also, would the "near-spot" exchange rates also apply to SGD>GBP as I'm investing on the LSE? I'm unable to find info on exchange rates on IB's website.

5. Will dividends be automatically credited into my IB account? While the ETF I invest in (i.e., Vanguard FTSE All-World; VWRL) is denominated in GBP, the dividends are paid out in USD. I should also open a USD account right?

Thanks in advance for sharing your experience and advice!

p.s., I wish I had fully considered and researched IB before I started investing. Though I've only a low five-figure amount in my international portfolio with SC, it pains me to think about how much they've "jiak" me on exchange rates so far.

 

[Shiny Things]

Hi all,

One of my 2013 new year resolutions is to learn how to invest (for retirement). For the past couple months, I've been investing an average of SGD1,500/month, plus most of existing savings, via SC. This is allocated into both local and international index ETFs, at a ratio of 35% : 65%. I invest on the London Stock Exchange (LSE) for my international ETFs to avoid the US' 30% dividend withholding tax.

Oh, wow.

So my initial reaction was "no way, it's going to be equivalent to the US ETF", but then I looked at it. Turns out the Irish wrap gets taxed at the Irish dividend rate (15% instead of 30%) and passed straight through - so you save half the tax and I don't think you get slugged with stamp duty. This would've saved me a sh!tload if I'd learned about it five years ago.

7D7N, can you confirm you don't get charged stamp duty on those ETF trades? If so, this is an awesome bit of tax avoidance that I didn't know about.

1. To confirm, the example IB transaction above would do away with the required activity fee minimum of 10 USD right?

Yep.

2. Are there other costs I've not taken into account?

You might have to pay a bit extra for LSE data - I'm not sure that's included in the base $10-a-month rate.

3. Before I make the switch to use IB exclusively for all international trades, are there any reasons not to do so? Hoping to hear from those with experience.

Yeah - IBKR's user interface is notoriously user-unfriendly. It's great once you get the hang of it, but it does have a steep learning curve.

4. Also, would the "near-spot" exchange rates also apply to SGD>GBP as I'm investing on the LSE? I'm unable to find info on exchange rates on IB's website.

Yep. It's the weekend now, so I can't find a live rate, but IBKR's closing rate for GBPSGD (at 5pm NYK time, after all the dealers have buggered off to the pub) was somewhere around 1.9842/60. That's pretty bloody good.

5. Will dividends be automatically credited into my IB account? While the ETF I invest in (i.e., Vanguard FTSE All-World; VWRL) is denominated in GBP, the dividends are paid out in USD. I should also open a USD account right?

IB accounts are multi-currency, so you can have a SGD base account, but get USD and GBP and AUD and whateverthehell paid into it.

p.s., I wish I had fully considered and researched IB before I started investing. Though I've only a low five-figure amount in my international portfolio with SC, it pains me to think about how much they've "jiak" me on exchange rates so far.

[/QUOTE]
No worries. It's never too late to switch!

 

[7days7nights]

Thanks Shiny for your responses.

Oh, wow.

So my initial reaction was "no way, it's going to be equivalent to the US ETF", but then I looked at it. Turns out the Irish wrap gets taxed at the Irish dividend rate (15% instead of 30%) and passed straight through - so you save half the tax and I don't think you get slugged with stamp duty. This would've saved me a sh!tload if I'd learned about it five years ago.

7D7N, can you confirm you don't get charged stamp duty on those ETF trades? If so, this is an awesome bit of tax avoidance that I didn't know about.

To share my experience:

1. On 21 May 2013, I purchase and held 50 shares of the VWRL ETF.
2. Bloomberg VWRL Quote - Vanguard FTSE All-World Fund - Bloomberg) indicates that a dividend of 0.4867 was distributed on 19 Jun 2013.
3. On 4 July 2013, USD$24.34 was credited into my account (50 x 0.4867 = 24.335). The ETF is based in USD–thus a USD dividend–though it can be traded in GBP, USD, EUR, and CHF.

So it looks like I received the entire dividend announced online (unless the dividend announced already takes into consideration the 30% dividend withholding tax). In addition, I don't seem to have been charged the 0.05% stamp duty–would appreciate if others could confirm this.

Given that the ETF is domiciled in Ireland, my understanding is that there are no withholding taxes on dividends (so you save the full 30% tax). Please correct me if I'm wrong. Useful forum threads studying this topic can be found below:

Bogleheads • View topic - how to invest in ETF with lowest/zero withholding tax?
Bogleheads • View topic - Avoiding US dividend tax for non-US investor,non-US equities
Bogleheads • View topic - As a non US expat, should I use NYSE or FTSE ETF

I guess it's time to make the switch to IB then. Quick question: do people usually transfer funds into IB through i-banking? I'm trying to do it via POSB but can't seem to find a spot to indicate the full "Uxxxxxx/Name"–POSB i-banking doesn't have a box for comments and I only have 20 characters to indicate my name. Or do I have to go to a physical bank?

 

[Shiny Things]

Given that the ETF is domiciled in Ireland, my understanding is that there are no withholding taxes on dividends (so you save the full 30% tax).

Pretty much. It looks like you get taxed at 15% instead of 30%, and the tax gets taken out at the ETF level (i.e. the ETF pays the tax for you) instead of at your brokerage account.

Yeah, this is a no-brainer for dividend-paying ETFs - it's going to save you 30-50bps a year. (It might even work for single stocks as well if there's a dual listing, but you need to be really careful to make sure you don't get slugged with stamp duty.)

I guess it's time to make the switch to IB then. Quick question: do people usually transfer funds into IB through i-banking? I'm trying to do it via POSB but can't seem to find a spot to indicate the full "Uxxxxxx/Name"–POSB i-banking doesn't have a box for comments and I only have 20 characters to indicate my name. Or do I have to go to a physical bank?

Can't help you on this one - I left Singapore before IB started taking SGD deposits - though I think the answer involves doing a wire-transfer instead of the usual funds transfer. There's a few threads on here answering that question, though.

 

[rine5]

If it involves a wire transfer, u will require a swift code of the bank tt u're going to wire to.

U shld be able to get the wire transfer details from IB. Expect to only see the funds appearing in ur acct after a few working days & perhaps even a fee for performing the wire transfer esp to overseas banks.

 

[deweylim]

Hi,

First of all, thanks for sharing!

Your thread really interest me as I'm in sort of the same situation but given up as i can't find a solution to overcome the exchange rate.

1) Is there a holding fees for IB for your LON ETF? I understand there is a holding fee for broker like DBS vickers for overseas stocks. But they will wave off if you make some trades per quarter. I don't trade so often.

2) When you transfer to IB from local bank, is there a fee incurred by the bank?

 

[7days7nights]

Happy to share that I've successfully made a transfer to IB's citibank account from my POSB account via i-banking. As a test run, I tried transferring 10 SGD. Received a receipt from IB acknowledging the transfer after 1.5 days. A notification followed indicating that my account had been activated and funded, and I could start trading (though I didn't meet the 10,000 USD threshold yet).

On the POSB side, I transferred via "Funds Transfer" > "Funds Transfer to Other Bank". I indicated my IB account no. (i.e., Uxxxxxxxx) under the field "My Initials (For display on payee's bank statement)"; my name couldn't fit as there was a 12 character limit.

On the IB side, I provided my bank and account number details for the transfer notification. Together with the above, it should be enough for IB to match your fund transfer to your IB account.

There were no fees incurred as it was simply an interbank transfer–interbank transfers between all banks in Singapore are FOC.

 

[7days7nights]

Hi,

1) Is there a holding fees for IB for your LON ETF? I understand there is a holding fee for broker like DBS vickers for overseas stocks. But they will wave off if you make some trades per quarter. I don't trade so often.

I'm not sure about the holding fee as I've not traded yet. However, do note that IB charges a monthly minimum of 10USD that can be offset by trading commissions.

E.g., your trading commission for this month is 8USD, thus you have to pay an additional 2USD.

E.g., your trading commission for this month is 20USD, thus you don't have to pay additional monthly charges.

 

[Shiny Things]

1) Is there a holding fees for IB for your LON ETF? I understand there is a holding fee for broker like DBS vickers for overseas stocks. But they will wave off if you make some trades per quarter. I don't trade so often.

No, IB doesn't charge any bogus "custodian fees". Really, no broker should ever charge those fees - it's just a way for them to gouge money out of you, and you should immediately dump any broker that starts charging them.

 

[kent07]

Happy to share that I've successfully made a transfer to IB's citibank account from my POSB account via i-banking. As a test run, I tried transferring 10 SGD. Received a receipt from IB acknowledging the transfer after 1.5 days. A notification followed indicating that my account had been activated and funded, and I could start trading (though I didn't meet the 10,000 USD threshold yet).

On the POSB side, I transferred via "Funds Transfer" > "Funds Transfer to Other Bank". I indicated my IB account no. (i.e., Uxxxxxxxx) under the field "My Initials (For display on payee's bank statement)"; my name couldn't fit as there was a 12 character limit.

On the IB side, I provided my bank and account number details for the transfer notification. Together with the above, it should be enough for IB to match your fund transfer to your IB account.

There were no fees incurred as it was simply an interbank transfer–interbank transfers between all banks in Singapore are FOC.

hi there, your post has been extremely useful. can i check what branch code did you key in while setting up the transfer?

 

[7days7nights]

hi there, your post has been extremely useful. can i check what branch code did you key in while setting up the transfer?

You're welcome. I used "Private Bank" as the branch.

 

[deweylim]

7 days bro, are you planning to move your current ETF from SCB into IB? I wonder if they will penalize us?

Also what ETF are you buying from LSE? I have VTI and VEA at the moment, wonder if LSE have them?

 

[7days7nights]

7 days bro, are you planning to move your current ETF from SCB into IB? I wonder if they will penalize us?

Also what ETF are you buying from LSE? I have VTI and VEA at the moment, wonder if LSE have them?

Hi Dewey,

In the long run, I'm intending to but I've not heard of anyone sharing their experience on doing so; therefore, I'm a little hesitant. There might be a transfer fee of sorts.

VTI and VEA are only available on the US markets. I have VWRL (similar to VT) and VFEM (similar to VWO).

 

[deweylim]

so your overseas stock is held under IB? Is it safe you think? Local stock by CDP?

 

[kent07]

Pretty much. It looks like you get taxed at 15% instead of 30%, and the tax gets taken out at the ETF level (i.e. the ETF pays the tax for you) instead of at your brokerage account.

Yeah, this is a no-brainer for dividend-paying ETFs - it's going to save you 30-50bps a year. (It might even work for single stocks as well if there's a dual listing, but you need to be really careful to make sure you don't get slugged with stamp duty.)



Can't help you on this one - I left Singapore before IB started taking SGD deposits - though I think the answer involves doing a wire-transfer instead of the usual funds transfer. There's a few threads on here answering that question, though.

am i right to say that for long term investing, would it be better to invest in a world stock ETF on the LSE given the lower tax on dividends? but the downside would be the fx risk on the pound/euro?

 

[Shiny Things]

am i right to say that for long term investing, would it be better to invest in a world stock ETF on the LSE given the lower tax on dividends? but the downside would be the fx risk on the pound/euro?

1) Probably, yeah. The difference is only minor - 0.3-0.5% per year - so it's not worth the extra hassle unless you're investing a fairly large amount; but if you are, then, yep, it makes sense.

2) There's no GBP FX risk on these trades - your only risk is on the value of the underlying assets' currencies against the SGD. Here's why.

Imagine a giant asteroid hits London one morning and wipes it off the map. Everything else is totally unaffected, but the value of the pound collapses by 90%.

The assets in the ETF would be worth exactly the same in USD, but their value in GBP would go up by 10x - so the share price would go from (say) £10 to £100. And the GBPSGD rate would go from 2.0 to 0.2 (because the pound's lost nine-tenths of its value), so your shares would go from being worth 20 SGD to... 20 SGD.

Movements in the pound have no effect on the ETF's value - it's only affected by the value of the underlying asset currencies against the SGD.

 

[kent07]

thanks Shiny Things!

7days7nights, how did you convert your SGD to GBP for trading on IB. I have checked with the IB helpdesk and they do not offer a SGD-GBP pairing to allow for FX conversion, the only way to go around this is to convert SGD-USD then USD to GBP.

 

[chienwei]

Happy to share that I've successfully made a transfer to IB's citibank account from my POSB account via i-banking. As a test run, I tried transferring 10 SGD. Received a receipt from IB acknowledging the transfer after 1.5 days. A notification followed indicating that my account had been activated and funded, and I could start trading (though I didn't meet the 10,000 USD threshold yet).

On the POSB side, I transferred via "Funds Transfer" > "Funds Transfer to Other Bank". I indicated my IB account no. (i.e., Uxxxxxxxx) under the field "My Initials (For display on payee's bank statement)"; my name couldn't fit as there was a 12 character limit.

On the IB side, I provided my bank and account number details for the transfer notification. Together with the above, it should be enough for IB to match your fund transfer to your IB account.

There were no fees incurred as it was simply an interbank transfer–interbank transfers between all banks in Singapore are FOC.

from the IB side, i select SGD, only got wire transfer option leh

 

[Sutcliffe]

I think IB charges a min of 20 usd per month for their services from how I read it

 

[Bit Spark]

from the IB side, i select SGD, only got wire transfer option leh

That's correct. You use wire option for interbank fund transfer.