Let's take a closer look at finding the best brokerage account interest rates. We'll explore brokers offering interest-bearing accounts and understand what criteria they should meet. We'll also discuss the reasons behind brokers providing interest on account balances and assess if it's a wise decision to select a broker based solely on their interest offerings.
What are interest-bearing accounts?
An interest-bearing account is a type of account that offers a predetermined interest rate on the money deposited in it. This allows the account balance to grow over time, preserving purchasing power and rewarding saving efforts.
These accounts are highly liquid, meaning you can withdraw some or all of your money at any time without any restrictions, fees, or commissions.
Interest on these accounts can be either fixed or variable and may depend on the amount of money you have deposited. Generally, the more money you have in the account, the more interest you will earn. Interest is typically credited monthly.
Interest-bearing accounts can have different durations. Some offer indefinite interest, meaning you'll continue to earn interest as long as the account is open. Others provide temporary interest as part of promotional offers with a set duration.
Some accounts may require a minimum balance to access the interest rate, while others do not. Additionally, there may be accounts that offer interest on a specific amount of money, and any funds lower than that amount will not earn interest.
Best brokes offering interest rate accounts
Here are the 3 best brokers in the UK with interest-bearing accounts:
Is Interactive Brokers the best brokerage account with interest rates?
Interactive Brokers has one of the most comprehensive plans for savings. It offers interest on nearly any major currency, including GBP, USD, or EUR.
It is regulated in the UK by the FCA and it is one of the most reputable international brokers. Depending on your chosen currency, the minimum deposit and interest rate vary. For instance:
- GBP accounts receive an interest rate of 4.749% with a minimum deposit of GBP 8,000
- USD accounts have an interest rate of 4.830% with a minimum deposit of USD 10,000
- EUR accounts receive an interest rate of 3.409% with a minimum deposit of EUR 10,000
Also, it's important to keep in mind that the full interest rates above are only paid on deposits of USD 100,000 (or equivalent). Lower deposits receive interest at rates proportional to the size of the account. Any deposits lower than the minimum amount will now receive interest payments.
Advantages of using Interactive Brokers:
- ✅ Reputable broker
- ✅ Great choice for higher balances
✅ Suitable for long-term investments or trading
- ✅ Interest payable on many currencies
- ✅ Regulated by the FCA
Cons of using Interactive Brokers
- ❌ The minimum deposit is quite high
- ❌ Full interest payable only on 100,000 units of currency
To read more about Interactive Brokers' interest-bearing account, check our article on market rate interest on cash balances with Interactive Brokers. Alternatively, have a look at our full Interactive Brokers review.
Is eToro the best broker account offering interest rates?
eToro, although best known for its ease of use and social trading features, has also introduced an interest-bearing account option.
- First tier: Balance of $10,000 with an interest rate of 2%
- Second tier: Balance of $25,000 at an interest rate of 2.4%
- Third tier: Balance of $50,000 at an interest of rate 5%
- Fourth tier: Balance of $250,000 with an interest rate of 5.3%
Have a look at our eToro review for more details.
Here are some of the main advantages:
- ✅ Minimum interest payments of 2%
- ✅ Interest calculation is daily
- ✅ Excellent choice for beginners thanks to copytrading feature
And regarding its cons:
- ❌ Quite high minimum deposit
- ❌ Account is only in USD
Is XTB the best broker with an interest-bearing account?
XTB has a competitive offer: it pays interest on your uninvested funds – the interest rate is calculated daily but paid monthly. However, the rate is variable and can be changed weekly.
On the good side, there is no minimum deposit required to start earning passive income. At press time, XTB offers the following interest rates:
- Less than £30,000: 2.5% per annum for GBP deposits, 2% for EUR deposits, and 2.5% per annum for USD deposits
- More than £30,000: 4.9% per annum for GBP deposits, 3.8% for EUR deposits, and 5% per annum for USD deposits
Just like eToro and Interactive Brokers, XTB is regulated by the FCA. Have a look at our XTB review.
- ✅ No minimum deposit required
- ✅ Quite high rates compared to other brokers
- ✅ Interest accrues daily
- ❌ Interest rates are variables and can be changed weekly.
Aspects to consider when choosing the best brokerage account interest rates
Here are some aspects you should consider before making a decision:
- The broker must be safe
- It's best to do your due diligence and choose a regulated broker. Ideally, the broker should be licensed by the FCA in the UK.
- Deposit only money you don't need
- It's important to keep in mind that you need to deposit funds that you don't need. All interest rates are expressed annually, but the interest accrues daily. However, depending on the broker, you will receive the money either daily or monthly.
- Low costs
- It's best to choose a broker without any maintenance fees that could cost you monthly. These may erase all your gains from the interest-bearing account, depending on how much you deposit.
- High interest rate
- It's important to read the fine print – is the interest rate fixed or variable? Is it expressed per 100,000 units of currency or regardless of the amount deposited?
Make sure you choose the best broker for your budget and capital.
Why are brokers offering interest-bearing accounts?
Interest-bearing accounts used to be a key product offered by banks. Here is why brokers are now diversifying their offers:
- Competing with banks
- Brokers that offer interest-bearing accounts aim to expand their target audience and attract more conservative investors. Essentially, with a trading account and a savings account, online brokers can now easily compete with traditional banks and offer extra advantages to their clients, who can save and manage all their funds in one place.
- Attract new customers
- The internet has given rise to numerous online brokers, leading to intense competition among them. Consequently, they constantly innovate by introducing new features and services for their existing clients to retain them and also to attract new clients.
- This competition is beneficial for investors, as they can enjoy improved offerings from brokers. These improvements include attractive incentives for opening accounts, lower commissions, reduced expenses, and the availability of interest-bearing accounts for deposits.
- Interest rate hike
- Undoubtedly, this is the primary reason why some banks and brokers are now offering interest on their clients' account balances. When the central bank raises interest rates, it allows many financial institutions to invest the money deposited by their clients in safe government bonds that provide returns exceeding 3% annually. Consequently, they can offer you a 2% or 3% interest rate.
- As long as fixed-income investments remain attractive, more banks and brokers are likely to consider offering interest to their clients. It remains to be seen whether these offers will persist when central banks eventually reduce interest rates.
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If you're an investor who regularly uses the money in your securities account for investments and doesn't leave it sitting for long periods, the availability of a broker's interest-bearing account may not significantly impact your choice of broker.
However, if you're an investor who conducts only a few transactions or if your money tends to remain idle in your account for extended periods, then it becomes a factor to consider when selecting a broker. However, it's important to note that this factor should never be the primary consideration. In other words, it's not very useful if the broker lacks safety, proper regulation, or has high commissions, among other issues.
Additionally, this feature is also crucial for individuals who don't intend to invest in financial markets but find that the interest rates offered by bank deposits are lower than those provided by a broker's interest-bearing account.
Can I use the funds in my interest-bearing account for trading and investments?
Yes, you can typically use the funds in your interest-bearing account for trading and investments within your brokerage account. These accounts are designed to provide liquidity while allowing you to earn some interest on your idle cash.
What happens to the interest rate if central bank rates change?
If central bank interest rates change, it may impact the interest rate offered by your broker's interest-bearing account. Some brokers may adjust their rates in response to changes in the broader interest rate environment.
Can individuals who are not active investors benefit from interest-bearing accounts with brokers?
Yes, individuals who don't actively invest in the financial markets can benefit from interest-bearing accounts offered by brokers. These accounts often provide higher interest rates compared to traditional bank savings accounts, making them a viable option for those seeking better returns on their idle cash.