Hi CharlieAlwaysTrading,
Thank you for your message.
Brokers paying interest on account balances is similar to earning interest in a bank account in that you receive regular interest payments, typically every month, calculated as an annual rate.
However, there are some notable distinctions:
- Account type: A brokerage account like eToro is designed for trading, whereas a bank account is for everyday banking needs such as direct deposit capabilities or overdraft facilities.
- Interest rates: Brokers may offer higher interest rates on account balances compared to traditional savings accounts, as you mentioned with eToro offering up to 5.3%. However, these rates can be variable and subject to change. It’s also worth noting that the interest offered by brokers may come with specific conditions, such as maintaining a certain balance or actively trading on their platform.
You can find more information about the mechanics of how brokers pay interest in the FAQs of this guide – https://www.daytrading.com/interest-on-cash.
I hope that helps.
James Barra