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 to trust our money for years? Security is essential to thoughtful buy-and-hold investors who don’t necessarily want to check the brokerage account daily and would instead get to the research.
This article highlights and discusses the due diligence we’ve done before we concluded: Yes, DEGIRO is safe.
What Is DEGIRO’s Business Model?
Named the “Top Rated Overall Investment Platform & Investment App 2023” by the Financial Times and also awarded by us as the “Best European Discount Broker”, 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
DEGIRO earns its revenue through commissions (earned per transaction) and interest (clients’ deposits over the European Central Bank [BCE] at the deposit facility rate).
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.
For the interest component, the rise in interest rates by the ECB has massively favoured DEGIRO, representing ~33% of the overall revenue. As shown in the first nine months’ report of 2023: “Interest income in 9M 2023 amounted to EUR 97.3 million, an increase of 96.8 percent over 9M 2022 (EUR 49.5 million). In Q3 2023, interest income amounted to EUR 38.3 million, an increase of 163.6 percent over Q3 2022 (EUR 14.5 million). The increase results from higher depository rates at the ECB and increased interest rates for margin loans at flatex and DEGIRO”.
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.
Several notes on the last report:
- Quarterly revenues increased by 29% to over EUR 100 million (Q3 2022: EUR 78.5 million)
- Adj. EBITDA in Q3 2023 is up 70% to EUR 41.2 million (Q3 2022: EUR 24.2 million)
- Substantial benefit from rising interest rates and net cash inflows of EUR 4 billion in 9M 2023
- Commission per transaction up 7% to EUR 4.26
- Further margin improvement expected in Q4 2023
- CET1 ratio of over 27% and a regulatory capital surplus of approximately EUR 100 million
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 from 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 aggregated assets. 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, the 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 succeeded incredibly 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 insurance claims.
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.