Credit Interest paid on HKD cash

Discussion in 'IB Technical Issues' started by GRULSTMRNN, Apr 15, 2019 at 3:33 AM.

  1. GRULSTMRNN

    GRULSTMRNN

    Not a technical issue but something that strikes me as extremely odd:

    I checked on IB's website and also chatted with the support desk over the phone, IB quotes at reference rate for HKD cash of 4.341% per annum. Their USD rate stands at 2.41% (and USD libor at 2.389%).

    The actual credit rate on idle HKD cash positions stand at around 3.55% per annum.

    That looks very high to me given HKD is pegged to the USD and the risk of a de-peg is relatively low at this point. I was confirmed that this is the correct rate. So far I invest most of my capital in 6m t-bills which I roll and earn around 2.x% on. If I held HKD instead the benefit would be a) the higher rate paid to me on idle cash, b) I could fully utilize the idle cash whereas with t-bills the hair cut is 1% or so. Not a big difference but still noticeable difference for larger account balances.

    No bank on this planet to my knowledge currently pays 3.5% on immediately available cash deposits (no lockups) on USD or USD pegged currencies. To be fair credit risk of large banks is lower than IB's credit risk but still...

    Thoughts? Opinions? Anything I am missing?
     
  2. The interest IB pays on idle cash depends on your total account value. If the total account value exceeds USD 100k they will pay you the full interest. Below that they pay pro-rate.
    The second step is that for the first HKD 78k they pay 0%. Only on the amount exceeding this threshold will 3.591% be paid, according to their website today. https://www.interactivebrokers.co.uk/en/index.php?f=39726&p=schedule The overall paid interest will thus be a blended rate.

    I'm not sure about how HKD is pegged to USD and what currency exchange rate risk you'll have if you decide to keep your excess cash as HKD instead of USD.
     
  3. Alexpung

    Alexpung

    There is a spike in overnight hibor on 11th April so the rate is not the "normal" rate.

    I think it is about 1.8% now.

    Don't forget first 10k get no interest and you only get full interest with 100k NLV.
    First tier still sucks with -1.5% spread.
     
    GRULSTMRNN likes this.
  4. it might in fact be the rate now, i doubt it can sustain, Hibor is notoriously volatile but by all means take advantage of it while it lasts
     
    GRULSTMRNN likes this.
  5. jharmon

    jharmon

    Hay. Sun shines.

    Hint: This is what every bank does. Welcome to the club.
     
  6. GRULSTMRNN

    GRULSTMRNN

    I know all that you exlained, it's on IB's website. That does not address the question unfortunately.

     
  7. jharmon

    jharmon

    The original question was "Thoughts? Opinions? Anything I am missing?"

    What do you consider to be the question that hasn't been addressed?
     
  8. GRULSTMRNN

    GRULSTMRNN

    I did not ask what Ib says, I clearly stated that I asked IB and mentioned what they replied with. My question was unrelated on the technicalities of how IB calculates credit interest. I am 100% aware of how IB does it. I asked what others' thoughts are on the reason of IB's wide USD vs HKD credit interest spread.

     
  9. The purpose of my message was to warn you: if you don't have an account value exceeding USD 100k you won't receive the interest rate which you see advertised on their website.
     
  10. GRULSTMRNN

    GRULSTMRNN

    I have 8+mln usd in the account and half of which is idle cash. I was wondering about the large spread between usd and hkd credit interest which the recent rise in hibor does not justify.