Interactive Brokers Is a Sneaky Way to Profit From High Interest Rates

Last week, Federal Reserve Chairman Kevin Warsh held his first Federal Open Market Committee (FOMC) meeting, making statements strongly suggesting a "higher for longer" interest rate policy, including possible rate hikes down the road.

For stock market investors, this could be concerning. Stocks, particularly speculative growth stocks, often trade inversely with interest rates. As rates go up, valuations could come down. Yet while Warsh's policy plans could create new headwinds for the broad market, these changes could be a potential boon for one major financial institution: Interactive Brokers (NASDAQ: IBKR).

Why? The discount broker, a pioneer in electronic trading, generates a majority of its overall revenue from interest. Hence, like with financial stocks and bank stocks, "higher for longer" bodes well for Interactive Brokers.

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Interactive Brokers and its not-so-secret revenue stream

Like most brokerages, net interest income (NII) is a key revenue stream for Interactive Brokers. There are two ways brokerages generate NII. First, they collect interest on customer "float," or uninvested cash. They also earn interest income on margin loans made to customers.

For a major institution like Interactive Brokers, interest income can add up quickly. Each month, the company releases brokerage metrics and other financial information. According to the latest report, as of May 31, 2026, the company had client credit balances, or customer cash balances, totaling $180.1 billion, a 34% increase over the past year.

Client margin loan balances totaled $100.9 billion, a 65% increase over the past year. During the first quarter of 2026, NII totaled $904 million, making up around 54% of the company's total net revenue. With the company reporting pretax profits of around $1.3 billion, or 77% pretax margins, the lion's share of this NII flows straight to the bottom line.

Interactive Brokers also continues to benefit from customer growth. Last month, for instance, the company had nearly 5 million client accounts, a 32% increase compared to May 2025, and a 3% increase compared to the prior month.

Interactive Brokers is a compounding machine

Considering customer and NII growth, it's easy to see how this company has been a compounding machine in recent years. Since 2022, the company's revenue has surged from $4.2 billion to $10.6 billion, while earnings per share went from $0.94 to $2.34. The company's quarterly cash dividend has grown significantly during this time, from 2.5 cents to 8.8 cents per quarter, a more than 250% increase.

Currently, sell-side analysts forecast revenue growth of around 14.5% and 12.5%, respectively, with earnings expected to climb from $2.19 per share in 2025 to $2.51 per share in 2026 and to $2.88 per share by 2027, representing average annual growth of 14.7%.

Such earnings growth could translate into further strong dividend growth, especially as Interactive Brokers' payout ratio remains low, at around 13.7%. Shares may be pricey at nearly 40 times forward earnings, but if high growth persists, they may experience, at worst, moderate multiple compression.

Continued double-digit earnings growth could counter a drop in forward valuation to the low- to mid-30s. This, coupled with the 0.37% dividend, could yield steady, solid total returns. With this, consider Interactive Brokers one of the best growth stocks to buy and hold.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.