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Why to stay away from Swiss brokers

Whether you’re new to investing or already have some experience under your belt, critically assessing your choice of broker is always important. Different brokers have different fee structures, provide access to different financial products, and come along with different tax implications. Are Swiss brokers a good choice? What are other options? Let’s find out.

Stay away from Swiss brokers

As you probably hinted by the title, I am not a big fan of Swiss brokers. This is mainly because of three reasons.

1 – Transaction and FX fees

Despite having never used their services, I went through the pain of putting together a comparison table for the fees of a subset of Swiss brokers:

Last updated on March 22, 2020

FeeCornerTraderSwissquoteUBS
Account custodyCHF 0max(CHF 15, 0.1%)0.55%
Transaction fees*USD 25CHF 30CHF 96
Currency conversionmax(CHF 10, 0.5%)0.95%Not specified

* Because transaction fees vary depending on volume and market/exchange, fees are calculated assuming a CHF 2.5k investment in US equities. This could be representative of a month’s worth of savings

If you’re like me, you’ll find the table above outrageous. For a monthly CHF 2.5k investment, you’re looking at a minimum effective fee of 1.5% (with CornerTrader) when factoring in the conversion CHF -> USD. More than 2% for Swissquote. What to say about UBS. Maybe that I even applied a 50% discount for online trades…. Why would anyone agree to give away at least 1.5% of their savings from the get-go?

And what about custody fees? Imagine your invested wealth was CHF 1m. All of it through UBS. You’d be paying almost twice as much in custody fees to UBS as you’d pay in wealth taxes to your canton, municipality and church. Combined. You can check the math here.

And this is not even the whole picture. Beyond the three types of fees captured on the table, some of these brokers will also charge you fees on outgoing payments. Ot to generate tax reports. Or to do you the favor of auto-converting dividends received to CHF. I’ve even seen some charging CHF 50 to close your account. None of the better alternatives we’ll discuss later charges a fee for any of this.

These three are just a subset of Swiss brokers. CornerTrader publishes a fee comparison against additional Swiss brokers [1]. It’s much less transparent, but you might be interested.

All-in-all, Swiss brokers are extremely expensive, and most certainly a bad personal finance choice for any long-term investor. I find it astonishing that some of them still have the gall to brand themselves as “trading fees savers”. Luckily there are much better alternatives. If you still don’t find the fees in the table above barbaric, wait until we put them in perspective with competitive brokers.

2 – Stamp duty

Swiss tax authorities force Swiss brokers to levy a stamp duty (or stamp tax) on securities trading. For the curious, a stamp duty is an archaic concept from the XVII century. Back then, it was customary to pay for a physical stamp impressed on documents to prove their legality [2]. Don’t ask me how this tax has made it to the 21st century. If you use a Swiss broker, stamp duties result in you paying [3]:

  • 0.075% of the market value of Swiss securities (Swiss ISIN) upon purchase or sale
  • 0.15% of the market value of non-Swiss securities (non-Swiss ISIN) upon purchase or sale

Because you have to pay whenever you buy or sell securities, you can see the stamp duty as a “turnover tax”. In other words, anytime you turn your portfolio (e.g. sell an ETF to buy a different one), you’ll incur stamp duty twice. For example, imagine you have USD 100k invested in VOO, and decide that you want to shift it to VTI. You’ll pay USD 300 in stamp duties fees alone. This doesn’t even consider transaction fees, conversion fees, bid-ask spread etc.

I won’t be harsh on Swiss brokers on this one, because there’s nothing they can do about it. This is Swiss law after all. I actually find it quite unfortunate that Swiss law discriminates against its own institutions. For us, stamp duties are basically an additional fee on top of everything we saw before. Because non-Swiss brokers are exempt, the balance keeps tilting in their favor.

Stamp duty tax applies to Swiss brokers only. International brokers are exempt

To clarify: whether or not you pay stamp duties depends on the domicile of the broker, not on the domicile of the security. You can still trade in the SIX Swiss Exchange without stamp duty through a non-Swiss broker.

If you’re like me and find Swiss stamp duties disgraceful, you might find some comfort in the fact that UK residents pay a staggering 0.5% stamp duty [4, 5]. They don’t pay it for all ETFs, but you get the idea. Two in distress makes sorrow less.

3 – Withholding tax implications

Swiss brokers are also forced by law to withhold an additional 15% tax on income from US securities (think of dividends, coupons etc.). This is referred to as Steuerrückbehalt USA, and goes on top of the 15% withholding tax levied by the US (the Pauschale Steueranrechnung, more info on this one here). This isn’t actually that big a deal. The Steuerrückbehalt USA is fully reimbursable. At least in theory. You just have to add it to your DA-1 form when you file your taxes. There is a whole entry explaining how the process works here.

Still, the whole process can be inconvenient. For starters, it adds steps to the tax declaration process. Even worse, if you don’t file your taxes, you might even lose the money.

In addition, as explained in this post, your broker has to be a Qualified Intermediary (QI) for you be able to get back the 15% withholding tax held in the US. This is the Pauschale Steueranrechnung we just mentioned. Honestly, I’m not sure if any of the Swiss brokers in the table above qualifies. At this point – because of the higher fees, stamp duty etc. – the optimal choice of broker won’t change. So it doesn’t matter that much whether any of the Swiss brokers is QI or not. The two broker recommendations that I’ll share with you in the next section do qualify.

What are better broker alternatives?

It should be pretty clear by now that Swiss brokers aren’t an optimal choice. We want to avoid through-the-roof fees, archaic stamp duties, and tax complications. What are better alternatives?

Adding non-Swiss brokers to the equation

Two very competitive brokers out there are Interactive Brokers (IB) and Degiro. In my opinion, they’re currently the best broker alternatives. Disclosure: I do not get any compensation from either. Let’s just see the facts:

Last updated on March 22, 2020

FeeInteractive BrokersDegiroCornerTraderSwissquoteUBS
Account custody0**00max(CHF 15, 0.1%)0.55%
Transaction fees*USD 1EUR 2.75USD 25CHF 30CHF 96
Currency conversionmax(0.002%, USD 2)0.1%max(CHF 10, 0.5%)0.95%Not specified
Stamp duty0%0%0.075%-0.15%0.075%-0.15%0.075%-0.15%

* Because transaction fees vary depending on volume and market/exchange, fees are calculated assuming a CHF 2.5k investment in US equities. This could be representative of a month’s worth of savings

** With IB, there’s a USD 10/month fee unless (i) your balance is > USD 100k or (ii) you generated more than USD 10 in fees during the month

The table casts shame on Swiss brokers. The different in fees is abysmal. We’re talking orders of magnitude. Plus stamp duties are gone.

To put things in perspective, investing CHF 2.5k in US funds every month of the year would result in the following aggregated annual fees:

  • Interactive brokers: CHF ~35
  • Degiro: CHF ~65
  • CornerTrader: CHF ~460
  • SwissQuote: CHF ~690
  • UBS: CHF ~1,200 (this doesn’t include conversion fees, which likely amount to additional CHF ~300)

These figures exclude custody/inactivity fees, generating tax reports, withdrawing money etc. In any event, the message is clear: IB and Degiro simply won’t rip you off.

Interactive Brokers vs Degiro

Which one of the two should you choose? I used to recommend Degiro because of its user friendliness. However, if you’ve read this post, you’ll know that US domiciled funds are a superior choice for Swiss residents. We discussed some of these funds here.

What’s the problem with US domiciled funds? That Degiro doesn’t allow to buy them. Why? Because of an EU law (PRIIPS) that came into effect in 2020. This is an EU law. It doesn’t really affect Swiss citizens. But unfortunately Degiro is not making an effort to differentiate Swiss and EU customers. They simply blocked US funds for everyone in Europe. Which is a pity. You can find more info here and here.

IB does respect that PRIIPs doesn’t affect Swiss domiciled investors. As a Swiss resident, you can buy US funds with IB. Because of that, I recommend Interactive Brokers.

On Interactive Brokers…

An additional advantage of IB is that you’ll have a multi-currency account. This means that can deposit/withdraw/hold balances in multiple currencies at the same time, which is quite handy. As mentioned in the table, a drawback is that they’ll charge you a USD 10/month fee unless:

  1. Your balance is > USD 100k
  2. You generated more than USD 10 in fees during the month

This might imply additional USD 120 in fees per year. Depending on how close you’re to the 100k mark, IB will make more or less sense for you.

If you decide to use IB, I’d suggest to access their services through their phone app. As a long-term investor, you shouldn’t download the trader workstation platform (TWS). TWS is a Bloomberg-like environment that will only bring you headaches.

Untangling the mess – Swiss securities and Swiss brokers

The implications of investing in Swiss securities (discussed here) are different from the implications of investing through Swiss brokers. The table below hopefully untangles the mess:

TypeSwiss brokerNon-Swiss broker  
Swiss securityStamp duty
35% withholding tax
35% withholding tax
Non-Swiss securityStamp duty
Additional 15% withheld for US securities (Steuerrückbehalt USA)
No Swiss withholding tax*

* But maybe other withholding taxes depending on country

Closing thoughts

The importance of fees

The way I see it, differences in fees and taxes are so big that the choice of broker should be a no-brainer. There is no “Swiss quality” to be found here. I recommend using Interactive Brokers or Degiro instead of Swiss brokers. More importantly, I encourage you to conduct your own research and be critical about what different brokers have to offer. You’ll you save thousands of francs in useless fees down the line.

Most of the fees discussed in this entry are non-recurrent, meaning that they only happen once at the moment of trade. Optimizing these fees is important. Optimizing recurrent fees (e.g. TER, taxes etc.) is important as well. If you haven’t already, you should check this entry

The future of brokers

Looking into the future, I believe that both recurrent and non-recurrent fees will keep going down over the decade. We’re already seeing it. ETF providers are offering more and more low cost options. Today, we can build an ETF portfolio with a TER below 10bps (even just 3bps as discussed here). In parallel, platforms such as Robinhood or IB Lite offer true commission-free investing. Unfortunately, they’re only available for US residents. As usual, Europe is lagging behind.

At the same time, I believe (and hope) that investing knowledge will become more widespread among retail investors. More knowledge usually translates into better choices. And optimizing for fees is an important investing choice. Swiss players and the like will sooner or later have to adapt or die. Justifying 100x higher fees while hiding behind a curtain of “Swiss quality” will only last so long.


Data sources and disclaimer

For Swiss brokers, the comparison tables use info from the three PDFs below, plus data from moneyland.ch [6, 7, 8].

Fees for Degiro fetched from their fee schedule [9]. Fees for IB obtained from multiple pages of their website [10, 11, 12].

All comparison tables represent the best of my understanding at the time of writing. They’re not a direct source of information from any of the companies discussed. Fee structures might be updated by any of the brokers at any time without notice. You’re encouraged to validate the figures or otherwise conduct your own research.

8 replies on “Why to stay away from Swiss brokers”

Hello Average boy,

Your website and specifically your blog post ‘Why to stay away from Swiss brokers’ are extremely good!
I have a few question related to the your great/valuable content:

1 – I agree completely with your points on Swiss brokers, but if I was to choose IB outside of Switzerland, would I need to go through there, for example, IB’s UK entity?
2 – Regarding different types of securities, are you aware of how the tax authorities treat derivatives i.e. Foreign listed options?

3 – Out of interest and assuming that Banking secrecy exists for Swiss residence, how do the tax authorities in the respective cantons (including the Fed) know what are in Swiss bank/brokerage accounts?

I am aware that you are not a qualified professional in the areas discussed in your blog and so I treat your content & responses as information only basis.

Again, well done with your superb website/Blog

Regards

Darren

Hi Darren, glad you found it helpful! To your points (and to my knowledge):

1 – IB’s UK legal entity serves the whole EU, so yes

2 – There are specific forms for derivatives when you declare taxes. See this entry for more info https://www.mypersonalfinance.ch/tax-declaration-guide-wertschriften/. The main to keep in mind, though, is that if you trade derivatives the tax authorities will likely classify you as a professional trader. This isn’t good. It means you’ll pay taxes on capital gains (which are exempt otherwise in Switzerland). More info here https://www.mypersonalfinance.ch/taxes-in-switzerland-101/

3 – Mostly through AEOI https://www.efd.admin.ch/efd/en/home/themen/wirtschaft–waehrung–finanzplatz/finanzmarktpolitik/automatic-exchange-of-information–aeoi-.html

Hello,
Thank you for the article, this is very useful and really helps me increasing my understanding. I would like to get your perspective on one point:

I am currently working and living in Switzerland and I am a beginner when it comes to investments. I really want to get started and based on everything I read here, I am thinking to invest through Interactive Brokers in one/two US domiciled ETF(s). You mentioned that this is basically only possible because I am currently living in Switzerland. How would it work if I would move back to the Netherlands (where I am originally from)? Can I still keep those ETFs?
And, in case I would not be able to keep them, would you advice me still to invest in US domiciled ETFs, if I would (for example) leave Switzerland in a year from now?

Thanks a lot.
Anke

Hi Anke,

Short answer is that you likely can’t buy US domiciled ETFs from an EU country. Why? Because of PRIIPS. Additional info here https://www.justetf.com/ch/news/etf/us-domiciled-etfs.html. CHisn’t EU and hence the restriction doesn’t apply.

This isn’t as big a deal as it sounds, because of two reasons:
1 – You can keep what you already bought in case you ever move out of CH
2 – More importantly, the fact that US domiciled ETFs are the most tax-efficient in CH doesn’t imply they’re the most tax-efficient elsewhere. In Spain and Belgium, for example, you pay no dividend taxes on accumulating ETFs. It follows that Ireland-domiciled accumulating ETFs are a superior solution to US-domiciled distributing ETFs. I don’t know the specifics for NL, but if I were you I’d start here https://www.bogleheads.org/wiki/Investing_from_the_Netherlands

Hi AverageBoy,
I have really enjoyed reading through your blog and found it to be very informative.
I have two slight concerns regarding IB though:
1) Since I would have to “inflate” my investment experience to trade, could that potentially cause issues? Not like I haven’t lied on internet forms before, but typically I don’t trust them with most of my wealth afterwards. I guess, I am essentially wondering if those questions are just there to cover IB in case of a lawsuit, or if it could mean — should they find out — they might close my account or something worse. I know it’s very unlikely they would ever even check on that information, but it seems like a potential risk — even if small. It seems to be a very common practice, since almost blog- & forum-post seems to mention it, so I guess my worry is unfounded?
2) Switzerland is apparently enacting similar laws to the rest of Europe with its finIA and finSA regulations. The laws went into effect this year, but certain parts only gradually apply, like the requirement of a KID until early 2022, I believe. I know the Swiss laws are not exactly the same, but I feel like I am reading contradictory things online on what exactly the impact is going to be. Some places seem to say that ETFs are only impacted if the funds are actively solicited to me, and not if I were to seek out a given fund myself (reverse solicitation). Even if this were true though, there is obviously no guarantee that IB wouldn’t just interpret the law as being identical to the European legislation and restrict Swiss traders anyway (like Degiro). In the threads on ‘moustachianpost’ you linked, the responses from Swiss banks/brokers seems to mostly be that it won’t have any impact, while the answers from IB is more ambiguous. The former obviously has a vested interest to know the situation in Switzerland exactly and likely has team of lawyers go through any new regulations with a fine comb, while IB might just eyeball it and may conclude that it’s not worth it to be potentially held liable for ‘soliciting’ through an unfortunately worded text.
I’d hate to open an account with IB now, only to be restricted to non-US-domiciled ETFs in about 2 years. It makes me wonder if I should stick with a Swiss broker for now, particularly because I don’t have 100k$ to invest at the moment, which would render IB not that much cheaper than e.g. Swissquote or Cornèrtrader at least for the next few years. Obviously changing brokers is never ideal, but it seems to me like a safer option right now.

Thanks again for all your helpful advice on this website.

Hi Lafayette and thanks for your kind words! To your points:
1 – Don’t know exactly what you mean by “inflating” investment experience, guess there might be some kind of “knowledge check” asking if you know how to trade stocks or something like that when you first create an account? If that’s the case, pragmatically speaking I’d just select whatever enables trading. Just by your level of interest I’m sure you’re in a better position than 90%+ of IB users 🙂
2 – I’m not 100% up-to-date with the latest on PRIIPs, but am aware there is some uncertainty. IMHO there’ll always be some future uncertainties looming, so I see no point in delaying the change of broker by two years. Even if the risk materializes, it’s possible IB wouldn’t force you to sell the US ETFs you already have, but simply not allow you to buy more. If this was the case, any US ETFs already bought would become even more precious!

Hello AverageBoy, first of all thank you for the amazing article, it’s rare to find something so clear and precise.
I would ask you just a couple of information:

1) does IB produce a tax report for CH resident that I can use to fill my tax declaration?
On the tax declaration we need to insert only the sum of coupon and dividends (no any capital gain on stock, bonds and forex), am I right?
So I guess IB Tax report should give directly the total amount of dividend/coupon/interest receveid (that add to our income where we pay our marginale tax rate).

2) If I hold US/EU and Swiss Stocks and bonds only, IB will takes just the 35% withholding tax on coupon and dividends from Swiss security (on which I’ll ask the refund on my tax fill).

Thank you very much and compliment for the great posts you make!

Daniele

Glad you found it useful! 🙂

1) It does! I even added a screenshot (with modified figures) in this entry: https://www.mypersonalfinance.ch/tax-optimization-for-your-etf-portfolio/. When you do your tax declaration there’s no field no indicate capital gains (at least in ZH), but these can be easily inferred from the start of the year position, the end of the year position, and the trades during the year (all of which you must disclose). More details on the tax declaration here: https://www.mypersonalfinance.ch/tax-declaration/

2) Not really, 35% withholding tax only applies to Swiss securities (not to US/EU ones), check the table under the heading “Untangling the mess – Swiss securities and Swiss brokers”

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