What Is a Margin Account?

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A margin account is a bank loan given to an individual in hopes that the person will take the excess cash and buy stocks or bonds from the bank. Be aware of interest rates paid on margin accounts, and how they may differ between banks, with information from a financial consultant in this free video on money management and personal finance.

Part of the Video Series: Money Management & Personal Finance
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Video Transcript

Has your stock broker convinced you to borrow money and then with that extra money, go and buy more stocks or bonds? Hi, this is Roger Groh of Groh Asset, and today we're here to talk about margin accounts, which is really a loan that the bank or brokerage firm has given to you in hoping, believing that you would then take that excess cash and go and buy more stocks or bonds from that bank. Now, the good news is that because you've leveraged yourself when prices are going up, you can generate a higher rate of return than you would if you weren't borrowing any money. OK, on the other hand though, when prices start to fall, your losses build quicker, so you have to be very careful and knowledgeable about what you do in any margin account. Last but not least, the rate of interest that you're going to pay in a margin account may differ significantly depending upon the bank or the brokerage firm where you actually hold your account. So, shop til you you drop. Well, I'm Roger Groh, and thank you very much for spending time with me.

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