How Does M1 Finance Make Money? 

Robo-advisors are quickly taking over the investment scene. Investors that don’t want a hands-on approach hand over the control to a computer program. It manages their portfolio and even reallocates it for them. But what if you want the benefits of a Robo-advisor’s choices? Yet handle your investments yourself?  Enter M1 Finance – the Robo-advisor with a twist. 

With M1 Finance you have complete control over your investments. M1’s algorithm gives you suggestions for ‘pie allocations’ as they call their portfolios. But you can choose from various investments within your risk tolerance. Additionally, once you set up your portfolio, M1 handles the rest. They’ll rebalance it if it gets off course and monitors it as any other Robo-advisor does.  M1 does all of this for no fees. They don’t charge management (monthly) fees or even commissions. So how do they make money?  Check out the ways. 

Ways M1 Finance is Making Money 

how m1 makes money

1. Interest on Cash Balances

Just like your local bank makes money on cash balances, so does M1 Finance. The balances kept with M1 are much lower than at a local bank. Yet, every dollar adds up. M1 loans the cash on hand to banks (mostly overnight). Moreover, they keep the difference between the interest paid to them from banks (that borrow) and the interest they pay out to investors. 

Investors may have cash on hand while they wait for the right investment to come along. Also, when they need some liquidity in their account for an emergency or to qualify for a loan. 

2. Interest on Lending Securities

M1 lends securities for short sales. When lending, M1 still owns the securities. Earning the dividends and any market earnings. Also, borrowers pay interest on the securities borrowed. The interest rate varies based on supply and demand. Then, borrowers must also pay a 2% premium on securities borrowed. If the asset price appreciates while borrowed, the borrower must pay the difference in premiums – making M1 more money. 

3. Interest on M1 Loans

M1 provides investors with a line of credit. Using your portfolio as collateral, M1 has little risk of total loss. So, they offer low-interest rates and easy qualificationsBorrowers may borrow up to 33% of their portfolio. As a result, M1 makes money on the interest charged. Right now, they charge 3.5%.  Usually, that changes based on the market.  

4. Interest and Fees from M1 Spend

Investors also have access to M1 Spend. Of course, that is through a checking account with a debit card. Investors may deposit paychecks, pay bills, and make purchases with the debit card. Just like any other bank card. Definitely, just like any bank, M1 makes money on the interest earned on your cash deposits. And they lend the funds out (typically overnight). Also, earning interest on the loans. Just like the cash balance in investments.  

Naturally, M1 also earns a small percentage on each transaction you make with your debit card. It’s called the interchange fee and is a part of the fees businesses pay to accept credit cards. Therefore, M1 earns the funds to cover the cost of managing the Visa card. Including fraud and bad charges expenses. 

5. Order Flow Payment

Furthermore, M1 makes a small commission from alternate exchanges. Looking to match buyers and sellers. Rather than going through the major exchange and giving large spreads between the bid and ask price. Alternative exchanges match buyers and sellers that have closer bid and ask prices. In exchange for the smaller spread, they want a lot of business. Reason why they pay brokers like M1 a commission to send their orders there. 

6. M1 Plus Membership Fee

M1 charges an annual fee for M1 Plus. It offers more services than a standard M1 membership. Including more trading options, lower M1 borrower rates, and higher APYs on M1 cash. They also provide a 1% cash back rebate on M1 Visa debit card purchases. In exchange for these services, M1 charges $125 per year for this service. 

7. M1 Finance Referral Program

Today, companies like M1 don’t have to spend millions of dollars on marketing. Instead, they rely on social media and word-of-mouth. To encourage this, they offer referral bonuses for current investors. Then, when you sign up using a referral link, the referrer makes a little bonus. 

Click here for more M1 Finance promotions.

M1 Finance Referral Bonus

Why would M1 pay for referrals? It’s a great and inexpensive way for them to get more business. When you share your referral code, you bring in more business. M1 happily pays a small commission for that business because it means they make more money with the methods above. Know more about M1 Finance Referrals here.

Is M1 Finance Safe?

Yes, M1 is safe and they are SIPC insured and have excellent customer service. A few of the steps they take to protect investors include: 

  • High-level encryption 
  • Two-factor authentication 
  • SIPC insurance up to $500,000 

Is M1 Good for Beginners? 

M1 is great for beginners looking for a hands-off approach. Also, M1 offers a variety of options to create your portfolios. Additionally, you aren’t stuck with a handful of portfolios, like other platforms. 

Once you answer the typical risk-tolerance questions, they provide suggestions. On the other hand, you don’t have to choose from only the prebuilt portfolios. If you want a truly hands-off approach – go for it. Plus, if you want something more customized to suit your needs, you’re free to do that too. 


Once you build your portfolio, it’s hands-off from there. M1 handles the reallocations and monitoring your portfolio. Certainly, it’s like the best of both worlds for beginning investors.  

Is M1 Finance Worth It? 

If you’re an investor looking for ways to get hands-on without losing it all in commissions, then M1 is worth it. Above all, they don’t require a minimum deposit and have no commissions. Besides, their advice isn’t ‘in your face’ you can take it or leave it (although it’s usually pretty good). You are free to create your own portfolios or use their pre-made portfolios, as well.  Check out our M1 Finance Review to learn more.

So, if you’re an active investor looking for a great way to invest – M1 Finance is a great option. Sign up today and see how you too can become a successful investor using this platform.