All-in margin account rates at Robinhood and IB

I've written elsewhere about the Robinhood app and Robinhood margin accounts (branded as "Robinhood Gold"). One issue raised on the Saverocity Forum was that Robinhood's margin interest rates were high compared to those offered by Interactive Brokers, generally considered one of the cheapest sources of margin credit for retail investors.I looked into it, and there are a couple moving pieces I think are worth mentioning. I'm not thrilled by the pricing disclosure of either site, so if there's something I'm missing I hope readers with more experience will chime in.

Robinhood Gold's flat margin lending APR

Robinhood's margin lending product is unorthodox, and presumably they hope to make some profits on the confusion induced from that weirdness, but the basic premise is simple: you pick the amount of margin credit you want Robinhood to extend, and you pay a flat fee for it whether you use it or not.I can pay $120 per year for $2,000 in "Gold Buying Power," i.e. margin credit, on the Robinhood trading platform. That works out to a 6% APR, although any unused Gold Buying Power doesn't reduce the amount paid. If you only use $1,000 of your $2,000 limit, you'll end up paying 12% APR, for example.Since Robinhood doesn't charge for domestic ETF and stock trades, that gives you a flat margin lending APR that you know in advance (as long as you use your entire margin credit line).

Interactive Brokers' layers of fees and interest

The thing said, both by Interactive Brokers and by their defenders, is that their margin lending rates are much lower than their competitors. This is true. Using their margin interest calculator, the same $2,000 margin credit line that would cost $120 per year at Robinhood would cost just $48.20 at Interactive Brokers.But Interactive Brokers, unlike Robinhood, doesn't offer commission-free trades. Not only that, but if you don't earn Interactive Brokers $10 per month in commissions, they'll charge you the difference!That means you are guaranteed to spend $120 per year — the same 6% APR Robinhood charges on a margin line of credit of $2,000 — plus your margin interest, in order to take advantage of Interactive Brokers lower margin interest rate.

Of course there's a breakeven point

Interactive Brokers' margin lending rate is so much lower than Robinhood's that even with the fixed overhead cost of $120, you quickly reach the breakeven point between their service and Robinhood Gold: at $3,342 in margin, to be precise. By the time you got to Robinhood's next threshold of $4,000 in margin (costing $240 per year) you'd save $23.60 with Interactive Brokers' $120 annual fee and $96.40 in interest.

Which service to use depends on both your needs and expectations

Interactive Brokers, as far as I can tell, is a profitable company that is able to leverage its scale to offer lower costs to its customers.Robinhood, as far as I can tell, is a deeply unprofitable company trying to seize as much market share as possible while it's still being pumped full of cash by its early-stage investors, hoping to eventually raise prices and become profitable.None of that matters to you, per se: your securities are insured on either platform, whether one or both eventually goes bust. What might matter to you is that in order to get and retain market share, Robinhood might keep its margin lending rates lower longer than Interactive Brokers does. If that's the case, then Interactive Broker's interest rate might creep up high enough to make Robinhood the cheaper source of margin credit, once you take Interactive Broker's flat monthly fees into account.