In recent years, the UK brokerage industry has seen a significant shift in how brokers interact with their clients. One notable development is the introduction of interest payments on uninvested cash balances. This has been driven by increasing competition among brokers, as well as the evolving needs and expectations of UK traders. By offering interest on deposits, brokers aim to provide a more comprehensive service and an additional financial benefit for their clients.
eToro
XTB
IGThis guide focuses on UK brokers that pay interest on uninvested cash, the implications of this practice and the requirements investors must meet to benefit from it. We will examine the various aspects of interest payments, including calculation methods, payment frequencies and the protection of client funds. We will also discuss the pros and cons of trading with brokers that offer interest on unused cash and provide guidance on how to choose the best broker for your needs.
- Investors who open an account with eToro are eligible to earn up to 4.30% interest per annum. Interest rates for non-EU clients are tiered, meaning they vary according to the available cash balance. Share investors must hold between $10,000 and $250,000 (the latter equivalent to ~£185,000 at the time of writing) in their live account balance to qualify.
- XTB is among the few brokers authorised by the Financial Conduct Authority (FCA) offering interest on uninvested cash. UK clients of the broker can earn up to 4.50% on uninvested sterling deposits, 1.25% on euros and 2% on US dollars. Interest is paid each month, with no minimum or maximum balance requirements.
- IG pays interest at an annual equivalent rate (AER) of up to 4.25% on uninvested funds held in sterling-denominated Individual Savings Accounts (ISAs), General Investment Accounts (GIAs) and Self-Invested Personal Pensions (SIPPs). Eligible clients must have an active Smart Portfolio, hold at least one open share position and make one or more buy or sell trades per month. Interest is paid only on cash balances of up to £100,000 across eligible accounts.
- Interactive Brokers, commonly referred to as IBKR, enables clients with sterling-denominated accounts to earn up to 3.47% on their available cash deposits. Clients with a net asset value (NAV) of £80,000 and cash deposits of £20,000 are eligible for an interest rate of 2.314%. Those with a NAV of £320,000 and cash deposits of £80,000 qualify for the higher rate of 3.47%. The rates are subject to change. Clients can use the built-in calculator for accurate, up-to-date estimates.
- Trading 212 pays interest daily, offering an annual equivalent rate (AER) of up to 4.35% on available cash balances in GBP-denominated accounts. Clients can withdraw their money or invest it at any time. There are no minimum or maximum balance requirements. Interest is available only on unused cash held in investment accounts.
- Interactive Investor clients can receive interest on available cash balances in their EUR-, USD- and GBP-denominated standard investment accounts (known as Trading Accounts). They can also hold investments in six other base currencies, all in one account. The broker uses a tiered system, with AERs ranging from 2.02% on the first £10,000 to 3.30% on balances exceeding £1 million.
- Tickmill clients can earn a maximum of 2.25% per annum on unused funds held in sterling-denominated wallets. Interest is calculated daily but paid monthly. To qualify, clients need a total balance of at least $100 (around £75) across their currency wallets and must have traded or held open positions within the last 30 days. All account types except swap-free accounts are eligible.
Brokers Paying Interest Explained
Brokers that offer interest on uninvested cash pay clients a percentage of their unused cash balance. This interest is typically calculated daily or monthly and credited to the client’s trading account. The rate offered can vary significantly, ranging from 0.1% to almost 5% per annum, depending on the broker, the account type and prevailing market conditions.
For example, some brokers may offer higher rates for larger balances or for clients who maintain a certain level of trading activity. Interest payments can be a valuable source of additional income for traders, especially those who maintain large cash balances or adopt a long-term investment strategy.
Interest payments can also help brokers distinguish themselves from competitors and attract new clients. However, traders should bear in mind that not all brokers offer interest on uninvested cash, and the terms and conditions can vary significantly between providers.
Although some brokers serving UK clients offer interest on uninvested cash, the FCA has issued several warnings about firms that have adopted this practice. In 2023, the FCA increased its regulatory focus on how investment platforms and brokers handle interest earned on uninvested client cash. This fell under the broader Consumer Duty initiative, which aims to ensure ‘fair value’ and better outcomes for retail clients.
Eligibility Requirements for UK Traders to Receive Interest Payments
To receive interest on uninvested cash balances, UK traders must meet certain requirements set by their broker. The conditions vary between providers but typically include:
- A minimum account balance: Brokers often require clients to maintain a minimum balance to be eligible for interest payments. The threshold can range from £1,000 to £100,000 or more, depending on the broker.
- Holding a specific account type: Some brokers only offer interest on certain account types. It is not unusual for UK brokers to pay interest only to Premium or professional account holders.
- Account currency: UK brokers may pay interest only if funds are held in a specific currency (typically GBP, USD or EUR). The rate can be higher when funds are held in GBP.
- Meeting trading requirements: Some brokers require clients to maintain a certain level of trading activity to qualify for interest payments.
- Providing the required documents: Brokers may require clients to provide documents, such as proof of identity and address, to comply with anti-money laundering and know-your-customer (KYC) regulations.
- Agreeing to the broker’s terms and conditions: Clients must accept the broker’s terms, including the interest payment provisions, to be eligible.
- A paid subscription: To access higher rates, UK traders may need to pay for a separate subscription.
UK traders should review the broker’s terms and conditions carefully before opening a trading account. This will help them understand the eligibility criteria and take full advantage of the interest on offer.
How Do Brokers Calculate Interest?
Brokers calculate interest on deposit balances in various ways, and the method used can significantly affect the amount a client earns. The most common approaches include:
- Daily balance method: Interest is calculated on the client’s closing balance each day.
- Monthly balance method: Interest is calculated using the account balance at the end of each month.
- Average daily balance method: The broker calculates interest based on the average of the client’s daily balances over a defined period.
- Tiered interest rate method: Different rates apply to different balance tiers. For example, a broker may pay a higher rate on balances above £10,000 and a lower rate below that threshold.
The calculation method can significantly affect the total interest earned, so UK traders should understand how their broker calculates it and review the terms carefully.
How Often Do Traders Receive Interest on Cash Balances?
The frequency of interest payments on uninvested cash balances varies between brokers. Some pay interest daily, while others credit it monthly or quarterly.
Payment frequency depends on the broker’s policies, the account type and market conditions. For instance, some brokers pay interest daily to clients who maintain a high balance or trade actively. By contrast, others pay interest quarterly, which can result in lower overall interest income.
UK traders should examine each broker’s terms to understand the payment schedule and plan their strategy accordingly. They should also consider the compounding effect of frequent payments, which can materially increase returns over time.
How UK Brokers Protect Their Clients’ Funds
UK brokers must safeguard their clients’ money in accordance with domestic regulations. The most common protections include:
- Segregation of client funds: Brokers are required to hold clients’ money separately from their own capital, ensuring it is not used for the broker’s business purposes.
- Deposit protection: Some brokers offer deposit protection schemes that provide an additional layer of security.
- Regulatory compliance: UK brokers that pay interest on uninvested cash must comply with FCA rules, which set strict standards for client money protection.
- Auditing and reporting: Brokers undergo regular audits to demonstrate that they are meeting the FCA’s requirements and safeguarding client money.
The FCA has also focused on ensuring that firms provide fair value to clients in relation to interest on cash balances, particularly investment platforms and Self-Invested Personal Pension (SIPP) operators. This means that, while brokers can pay interest on deposits, they must do so transparently and fairly. UK traders should therefore review each broker’s policies and procedures to understand how their money is protected.
Pros and Cons of Trading with Brokers Paying Interest on Uninvested Cash
Below, we highlight the main advantages and drawbacks of trading with brokers that pay interest on unused cash. Considering both can help traders decide whether activating an interest-paying account suits their investment goals.
The pros include:
- Higher interest income: Brokers may offer higher rates than traditional savings accounts, resulting in greater overall income.
- Flexible terms and conditions: Some brokers offer flexible arrangements, such as daily payments or tiered rates.
- An alternative to savings accounts: For those who prefer not to use a savings account, earning interest on uninvested cash through a broker can be a viable option.
The cons include:
- Market risks: Interest rates are linked to market conditions and can be amended or withdrawn at any time.
- Regulatory risks: Changes in regulation can affect the terms offered by brokers.
- Counterparty risks: The broker’s financial stability may affect the safety of client funds.
UK residents should carefully weigh these pros and cons before deciding whether to keep uninvested cash with a broker that pays interest.
How to Choose the Best Broker Paying Interest on Deposits
While a high interest rate might seem the most obvious factor when choosing a broker, we recommend that UK traders consider several other aspects:
- Interest rate: The rate should be competitive and suited to the client’s objectives.
- Terms and conditions: A suitable broker will make the interest terms clear and transparent, detailing the calculation method, payment frequency and any fees.
- Regulatory compliance: FCA authorisation is essential, requiring the broker to adhere to UK rules.
- Client fund protection: Look for robust safeguards, including segregation of funds and deposit protection schemes.
- Reputation and reviews: Consider feedback from existing clients.
- Trading platform and tools: A user-friendly platform with high-quality tools and resources is a significant advantage.
By keeping these factors in mind, UK traders can identify a broker that pays interest and suits their trading and investment goals.
FAQ
Can UK traders earn tax-free interest on uninvested cash?
Interest earned on uninvested cash is generally subject to income tax in the UK. However, traders may earn tax-free interest if their funds are held within tax-advantaged accounts such as a Stocks and Shares ISA or Cash ISA. Outside these wrappers, interest may be covered by the Personal Savings Allowance (up to £1,000 per year for basic-rate taxpayers).
Do FCA-regulated brokers pay interest on uninvested cash?
Some FCA-regulated brokers do offer interest on uninvested cash balances, but this is not a regulatory requirement, and not all brokers provide it. Interest rates are usually tiered and depend on the amount held and the currency. Traders should review each broker’s terms, as rates can change in line with market conditions and may be subject to minimum balance requirements or account fees.
Can UK traders earn interest on uninvested cash held in multiple currencies?
Yes, some brokers pay interest on uninvested balances held in currencies such as GBP, USD or EUR. However, this may expose traders to foreign exchange risk. Any interest earned in a foreign currency is subject to UK tax, with amounts converted to GBP at the appropriate exchange rate for reporting purposes.
How do UK brokers protect clients’ uninvested cash from cyber threats or misuse?
FCA-regulated brokers are required to segregate client funds from company assets and implement robust cyber security protocols. These typically include encryption, firewalls, intrusion-detection systems and regular compliance audits. Client funds may also be eligible for protection under the Financial Services Compensation Scheme (FSCS), up to £85,000 if the firm fails.
Can interest on uninvested cash be used as a source of regular income for UK traders?
While some brokers pay interest on uninvested cash, the rates are usually modest, and this interest should not be relied upon as a primary income stream. Traders seeking a steady income should consider a diversified portfolio that may include dividend-paying assets or fixed-income products, depending on their objectives and risk tolerance.