- eToro announced it will pay investors 4.9% interest on idle cash held in their options account.
- Users must have at least $5,000 in idle cash to benefit from the interest rate, but investors with less than that can pay a fee to receive the 4.9% interest.
- The move not only indicates that eToro wants to keep hold of investors’ funds as they move their money out of risky investments, but it also signals that eToro likely won’t launch its own suite of banking tools any time soon.
After starting the year with a fresh $250 million in funding, social investment network eToro has experience with cash. Perhaps that’s why today the company is launching a feature that pays users interest on cash in their accounts.
The new option is meant to serve as another form of diversification for its investor clients. Currently eToro offers users the opportunity to invest in crypto, stocks, ETFs, and options trading. And while holding cash is usually considered a negative quality for investors, a high interest rate, combined with no risk of loss may make higher cash balances more palatable.
“Retail investors are constantly told to diversify their portfolio and ensure they’re maximizing their investments – our new high interest on cash offering helps investors make their money work even when it is at rest,” said eToro U.S. CEO Lule Demmissie. “Our high rate offering is accessible to real investors unlike other brokers who have high minimum balance requirements to earn their rates.”
The new interest on cash program is free for eligible users with an at-rest cash balance of $5,000 or more and the 4.9% interest is paid on cash reserves that are not actively invested. Users with a cash balance lower than $5,000 can still receive the 4.9% interest rate, but eToro will charge them a monthly fee.
Users can access the new interest on cash feature via eToro Options. At launch, accountholders will receive 4.9% APR on cash balances within their eToro Options account. This comes at a time when, in the U.S., the average yield for savings accounts is 0.61% APR.
As new and existing challenger banks bolster their offerings with high-yield interest rate accounts, it is becoming increasingly difficult (and more expensive) for banks to win over consumer deposits. Today’s move by eToro indicates two things. First, the company is seeking to stem the outflow of investor funds as they move their money from risky market opportunities into high-yield savings account safe havens. Secondly, it indicates that, unlike many other fintechs in the investing space, eToro is not planning to become a challenger bank by launching its own savings account and debit card any time soon.
A wealthtech pioneer, eToro was founded in 2007 and has received nearly $693 million in funding. The Israel-based company currently has over 32 million registered users from more than 100 countries on its platform. Yesterday, eToro announced it received approval from the Abu Dhabi Financial Markets Authority to operate in the UAE.