Following my move to Spain, I started searching for a local broker to start investing in stocks. For several reasons, it’s usually better and more convenient to use a broker that is registered in the country where you reside.
Here are a few of those reasons:
- Support available in your own language. Not critical for me in this case as I speak both English and Spanish.
- No need to fill in any foreign asset reporting documents at the end of the year (Spanish Modelo 720 in this case).
- Advantageous commissions (or lack thereof) for the local stock market.
Now there’s a caveat to this which is important when you’re searching for your ideal broker. Some brokers might be registered in Spain and give you a Spanish IBAN, but will not report to the local tax authorities, and you’ll have to do this yourself via the Modelo 720.
Let’s start with those that give you a Spanish IBAN and inform the Spanish tax authorities, and hence there is no need for modelo 720:
- Brokers of Spanish financial entities (Bankia, Bankinter, BBVA, Banco Santander):
- Renta 4
- ING Direct
Next, we have the Spanish-based ones with a Spanish IBAN, but don’t inform the Spanish tax authorities; Modelo 720 needed:
Finally, we have the ones that are completely outside Spain, have a non-local IBAN and do not inform the Spanish tax authorities; Modelo 720 needed.
With that out of the way, let’s move onto some of my requirements for an ideal buy-and-hold broker:
- Zero fees for custody and account maintenance.
- Low fees on USA share purchases.
- Low fees on transferring holdings outwards to another broker.
- Protection up to 100K.
- No loaning out of shares.
- Ability to keep money in other currencies and transfer USD in and out.
- Good web interface and mobile one too.
The bad news is that none of the local brokers meet all those requirements. Before you accuse me of wanting something that doesn’t even exist, Calamatta Cuschieri, a broker in Malta, fits the bill perfectly. Of course, they are not Spanish based, so I had to discount them from my list of possible fits. I’m pretty sure there are many others around the world that I’m not aware of, so it’s legit to ask for those features in a brokerage.
Fees and commissions are top on my list as a buy and hold investor, and the only one I found that makes sense for me is DEGIRO. This broker, however, does not report to the Spanish tax authority, as mentioned above.
DEGIRO was founded in 2008 and has been expanding rapidly since then across Europe. The platform has a nice and modern interface that works perfectly fine for my needs.
After having covered my wishlist and some essential information on my shortlisted broker DEGIRO, let’s dig a little deeper.
Asset protection for DEGIRO is handled by the Dutch DGS. The Deposit Guarantee Scheme (DGS) is a set of rules that guarantees the deposits of bank account holders. If a bank goes bankrupt, the DGS guarantees deposits to a maximum amount of EUR 100,000. The guarantee applies to most account holders and virtually all types of bank accounts. My understanding is that for stock purchases protection is only up to 20,000 Euro. This is not as good as the Spanish FGD which guarantees up to 100,000 Euro. The chances of DEGIRO going bust and clients losing their stock assets is minimal, but possible. I would definitely be more comfortable with a 100K guarantee, but I’m ready to go with the 20K guarantee given the inconvenient commission structures of the Spanish brokers.
One of the bigger problems with DEGIRO is that they automatically convert your money to other currencies when required. Let’s explain this further.
Let’s say you put in a thousand euro in your account. Then you decide to invest in a US stock, which is of course denominated in USD. When you purchase, the broker will automatically convert the amount needed from your EUR balance to USD in order to buy the shares.
Secondly, when you receive a dividend from a US stock, or you sell that stock, the proceeds will be in USD, however on arrival at your brokerage account, the money will be converted back to EUR.
Most people forget to take this currency exchange issue into consideration when calculating the costs of operating with a broker.
The DEGIRO FX fee is 0.10% using AutoFX. You can do it manually, but the fee is then €10 + 0.04%. Probably not worth the bother on modest amounts. AutoFX means any sales/dividends will be converted into Euro automatically also. If for example, you would like to buy American shares for USD 3,000, the AutoFX facility will automatically convert the exact amount of EUR required to complete the transaction in USD. This means you do not first have to conduct your own currency conversion.
W8-BEN for US Stocks
If you go with the US exchange, DEGIRO will offer a prefilled W8-BEN online form. It takes a whole minute to review and submit. This reduces the US dividend tax from 30% to 15%. Note: You’re still on the hook for Spanish tax either way on dividends (even if you reinvest them), but can claim the US withholding tax paid as a credit.
Fees and Commissions
With regards to commissions and charges, here’s the important info for DEGIRO:
- Yearly fee per stock exchange used (purchase, sale, or holding): 0.25% of portfolio value, max 2.50 Euro.
- Costs of US stock in DEGIRO: €0.50 + USD 0.004 per share
- Transfer costs from DEGIRO: 10 Euro per position
- Custody fee: None.
I’m happy with DEGIRO and would recommend it to anyone living in Spain or other European countries where it’s available.
The other brokers I considered were the following:
Interactive Brokers: Well known international broker, great rates on buy and sell ($0.005/share with a $1 minimum), and asset protection of up to $250,000. You can have both USD and EUR balances with them and they have a very good exchange commission if needed. No cost for inbound or outbound transfers. The big negatives are a $10 monthly custodian fee if you have less than $100,000 invested, and the fact that you need to report your assets via modelo 720.
Clicktrade: Interface powered by SaxoBank, $0.02 per share for US stocks (minimum USD 15).
SelfBank: Euro 14.95 for US stocks, 0.125% if more than $15,000. 3 operations per month necessary to get rid of the custody commission (Euro 4.95/month), so it’s not ideal for me as I don’t operate that frequently.
Do you reside in Spain and invest in the stock market? I’d love to know your thoughts on which brokers you prefer.
Investing in stocks, bonds, and ETFs involves risks including complete loss. Please do your research before making any investment.