Interactive Broker as a end-stop?

[dav19e]

Hi everyone,

I just formed a HoldCo LLC & Trust in Nevis, and i am now looking into corporate banking solutions. While it may be really hard to open an onshore bank account with a Nevis LLC, i can use the Bank of Nevis without any problems. Let’s say i don’t trust offshore banks to store a large sum of money (2M+) long-term, then where should i consider storing it without waiving protection?

I was recommended to open an Interactive Broker account and storing it there. This person said there shouldn’t be any problems storing it there long-term. Any thoughts or recommendations you may have?

Thank you

 

[dav19e]

Any recommendation?

 

[Tax Cow]

You're just looking to park? Get out of fiat, and purchase gold or property. The idea of hiding uninvested cash in IB or other online brokers is a rookie mistake.

 

[curiousmarv]

You're just looking to park? Get out of fiat, and purchase gold or property. The idea of hiding uninvested cash in IB or other online brokers is a rookie mistake.

Can you please elaborate in a few words? I was also looking into IB for a few thousand Dollars because it seems safer and easier to stash it there than a normal offshore bank. As I said... it's not a lot of money (it's all relative anyways, it's a lot for me).

 

[dav19e]

You're just looking to park? Get out of fiat, and purchase gold or property. The idea of hiding uninvested cash in IB or other online brokers is a rookie mistake.

Beside the idea of parking uninvested cash in a IB account, any reason why this could be a rookie mistake?

 

[Tax Cow]

For basic storage, the digital realm bears inferior privacy properties and multiples of the downside potential. You go digital if you need a degree of liquidity or a stable yield at the cost of increased risk.

Your 2M is not insured by the IB. Relatively speaking, it's in a safer place than your Nevis bank, that much is true. But it's a small incremental improvement.

Interactive brokers has supplemental private insurance, but if the full amount covered is spread out across all high-value accounts, you'd be lucky to recover 25% (after state + private insurance) in case of IB insolvency. Near 100% loss is a real possibility since you're a non-US person who does not invest at all. The state insurance applies if the cash is held on a brokerage account for the purpose of investing, in which you do not partake. You can imagine how in a crisis they may want to take advantage of these provisions in the law, and not to the advantage of non-Americans.

75 - 100% of downside potential at a micro yield does not make sense. If you put those funds on IB, it's better to invest in historically-low-yield three month US treasuries, or other stuff deemed safe.

@therealmarv keeping a few thousand there isn't an issue.

 

[Suzy Emerald]

Isnt USD cash on an IB account insured for 250K under FDIC regulations?

 

[jscargo]

250K yes, 2M no. One can spread it in several brokers, 250k in each.

If you don't have money parked there in liquid cash, but actually stocks bought in one of these platforms, what happens to your stocks if the platform goes bust?

 

[Suzy Emerald]

IB offers to spread your cash over several different banks for FIDC purposes. So 1M can be spread over 4 banks.

 

[Suzy Emerald]

But it is still to be seen if FDIC will and can pay if things go wrong.

 

[Tax Cow]

... stocks bought in one of these platforms, what happens to your stocks if the platform goes bust?

Stocks held with IB or other discount brokers like Saxo are held "street name", on record belonging to IB or Saxo respectively. They have a pledge towards customers. This means that you can't just migrate to another platform when they go bust, you have to endure the liquidation case. With more elegant brokers like DBS Singapore, you actually own the stock as it's registered in your name in SGX. DBS going under won't affect your SGX stocks and you could just continue trading and profiting via UOB or OCBC the very next day.

Eventually, you'll get your stocks from IB, after liquidators have harvested their share of everyone's portfolio (up to 5%) in legal fees. Considering the size and complexity of IB, it's going to be a several-year case billed hourly by several top law firms.

Odds are the state won't let IB go under. A bail-out is not out of play, unless of course someone like Bernie occupies the WH.

 

[LegitBananas]

Don't wanna derail the thread too much but since it is about interactive brokers...

Does anyone know how this works as it pertains to financial reporting? Will your activity with Interactive Brokers be reported upon account creation or upon cashing out on stocks?

 

[crazycookie]

With more elegant brokers like DBS Singapore, you actually own the stock as it's registered in your name in SGX. DBS going under won't affect your SGX stocks and you could just continue trading and profiting via UOB or OCBC the very next day.

This only applies to your SGX stocks, right? What would happen to stocks on US/UK exchanges if such a thing happened?

 

[KJK]

If Interactive Brokers went into bankrupcy or something similar (which I don't think is likely), in that situation it would be possible to transfer your shares to another broker.

It is explained in detail here: How To Change Broker And Transfer Your Portfolio - The Poor Swiss
Many brokers work in this way, though there are exceptions such as Revolut where you don't actually own the shares directly and Revolut just has an obligation against you.

 

[Outlander]

As an alternative to parking at IB, how about purchasing a pool of stablecoins pegged to USD, such as Gemini Dollar? I know some of these, such as Tether, have had issues in the past, but the industry is evolving.

This is not a suggestion, I don't know if I'd do it myself with $2M, but it's open to discussion.

 

[rowena]

Actually, you can get insured up to $2.75M with IB. They have a special program for this

https://www1.interactivebrokers.com/en/index.php?f=27462

 

[Willblack]

You will be fine with IB, however, get in touch with them beforehand imo and explain your intentions.
I would advise, however, never to store all of your eggs in one basket.

 

[Tax Cow]

If Interactive Brokers went into bankrupcy or something similar (which I don't think is likely), in that situation it would be possible to transfer your shares to another broker.

It is explained in detail here: How To Change Broker And Transfer Your Portfolio - The Poor Swiss
Many brokers work in this way, though there are exceptions such as Revolut where you don't actually own the shares directly and Revolut just has an obligation against you.

You don't own your shares with IB.

 

[Martin Everson]

Be careful when talking about Interactive Brokers and deposit insurance. It depends on which entity of IB you use. Don't be looking at US IB entity pages and think you will get FDIC coverage. If you live in EU you be opening with IB UK and will get IB UK's FSCS coverage which is not same as US FDIC coverage...lol. See my post below on subject before.

https://www.offshorecorptalk.com/threads/swissquote-vs-saxo-for-keeping-money.26810/post-104162
Don't wait till IB collapses to find out the hard way your entity has poor deposit protection.

Information Relating to Customer Protection of Assets | IB Knowledge Base

 

[KJK]

You don't own your shares with IB.

Well just recently I received some yearly letters from MLPs which I bought through IB.
Mailed to my address and in my name.

Does that mean Interactive Brokers owns the shares but the company instead is sending letters to me directly for some reason (if IB owned the shares, I assume the company whose stock I bought wouldn't have access to my name)? I'm not saying that is not possible, just wondering.