As one of the leading discount brokers tailor-made for Europeans, DEGIRO consistently remains in the spotlight. Founded in 2008 and headquartered in Amsterdam, DEGIRO is a low-cost brokerage providing select commission-free trading for stocks and ETFs, which is excellent for long-term portfolios. The natural question: is DEGIRO safe?
In other words, is it a good platform with which to trust our money for years on end? Security is essential to thoughtful buy-and-hold investors who don’t necessarily want to check the brokerage account every day and would instead get to the research.
This article highlights and discusses the due diligence we’ve done before we came to a conclusion: Yes, DEGIRO is safe.
What Is DEGIRO’s Business Model?
Named the “Top Rated Overall Investment Platform & Investment App 2023” by the Financial Times, DEGIRO’s business model focuses on attracting individual investors–often referred to as retail investors. In fact, they’ve earned more than 90 international awards for their platform.
With DEGIRO, European investors benefit most from their extraordinary international exposure. They offer access to more than 50 exchanges across 30 countries.
How DEGIRO Makes Money
Like other major discount brokers, DEGIRO earns its revenue through the fees gained per transaction. There are two methods for achieving this: (1) commission and (2) spread.
The commission refers to DEGIRO’s charge for providing their service. While the lowest or among the lowest in Europe in terms of costs, a few key details from their fee schedule show:
- US or Canadian stocks: €/£1.00;
- European stocks: €/£3.90 per transaction;
- ETFs (globally, with zero-cost exceptions): €/£2.00;
- European bonds: €/£2.00;
- European options: €/£0.75 per contract.
Spread refers to the price difference between “bid” and “ask” prices. Bid prices represent what a broker is willing to spend to buy your security, while ask prices represent what a broker is willing to receive in order to sell you a security. The bid will always be lower than the ask. For example, €100 (bid) to €105 (ask).
Essential to answering the question – Is DEGIRO Safe? – lies the latest financials for the company. We want to see a growing enterprise with solid earnings (EBITDA) and a respectable cost-income ratio.
With the below, we see all three boxes checked despite the coronavirus pandemic. Customer accounts grew by 16.3% and the EBITDA margin by 67.80%. The adjusted EBITDA fell by 7.21%, but this snapshot gives us solid confidence in the company’s prospects.
Further down the same report, we see €1.6 billion in cash and cash equivalents as of 31 December 2022, another good figure. This screenshot does not give the full picture, but it alleviates the concern of any warning signs or red flags.
What If DEGIRO Defaults?
An unlikely occurrence, but helpful to contemplate for your added benefit and security. Let’s consider four separate factors.
1. Your Assets Are Segregated
Client assets are maintained separately from DEGIRO and are not treated as recoverable assets to creditors. Your assets remain yours.
Since the company is a licensed investment firm authorized by the Netherlands Authority for the Financial Markets (AFM), but it is the German Investor Compensation Scheme which protects investors in the event that DEGIRO fails to safeguard client assets.
2. Investor Protection
With the German Investor Compensation Scheme, individual clients are protected by any losses from non-returned assets up to 90% (with a maximum of EUR 20,000). This applies per individual, and not per account. If an individual has opened multiple accounts, the scheme protects all assets in aggregation. Further information on the scheme can be found in English here.
A frequent misunderstanding with the scheme is that all assets above the €20,000 threshold are lost. Not at all–the practice of asset segregation ensures that all your assets are secure. The scheme comes into effect only if DEGIRO is discovered to have failed to sufficiently protect client assets, or in the case of fraud.
3. Ample Regulation
The flatexDEGIRO Bank Dutch Branch, operating under the name DEGIRO, is the Dutch branch of flatexDEGIRO Bank AG. The latter entity is supervised by the German Federal Supervisory Authority (BaFin).
Within the Netherlands, flatexDEGIRO Bank Dutch Branch is subject to integrity supervision by the central bank of the Netherlands (DNB), and further supervision by AFM.
4. Additional Cash Protection
When you open an account with DEGIRO, you also open a cash account with flatexDEGIRO Bank. All your uninvented money will be held in a segregated bank account with a personal IBAN.
Your money is thus guaranteed by up to €100,000 since the German Deposit Guarantee Scheme also applies. However, this cash account is not used for other banking or personal matters–only to hold money for your DEGIRO account.
What to Remember
- Asset segregation: Your assets are untouchable in the event of the company’s default;
- Investor protection: If asset segregation fails, then the German Investor Compensation Scheme protects individuals by up to €20,000;
- Regulation: DNB and AFM regulate DEGIRO;
- Cash protection: DEGIRO’s method of opening a dedicated cash account automatically introduces cash protection up to €100,000.
Even though it was popular before the coronavirus pandemic, retail investing came to incredible success as remote working inspired many to take up new passions–and investing is a superb choice.
However, there remains a seemingly limitless plethora of online brokers to choose from. Low fees are a must for traders, but so are asset protection, protection, and regulation. So is DEGIRO Safe? Yes, absolutely.
As a final tip, once you begin trading, please ensure you keep records of your holdings, trade confirmations, and account statements every month. This little step will make the job easier for the regulators when filing any insurance claim.
Stay safe out there!
Is DEGIRO Safe?
Given its regulation by AFM and DNB and the guarantees provided by the Geramn Investor Protection Scheme, in addition to asset segregation, we feel confident in saying: yes, it is safe.
Does DEGIRO offer options and futures?
Yes. However, forex trading is not available, nor is crypto.
What’s the minimum amount for opening a DEGIRO account?
DEGIRO’s minimum deposit is €/£0.01.
Where can I find more information on DEGIRO?
Please check out our comprehensive DEGIRO review.