Etoro introduces 4.3% interest on uninvested cash – is it a good deal?

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Etoro will pay 4.3 per cent interest on uninvested cash held in trading accounts, but there are several caveats that mean investors are likely to get a better deal when stashing cash elsewhere.

The investment platform will pay interest on uninvested US-dollar balances, which is a drawback for UK investors.

It costs 0.75 per cent to convert your pounds into dollars, ready to invest in American companies – and then another 0.75 per cent to convert your funds back into pounds for withdrawal.

The interest rate you receive also depends on the value of funds held in your account, including investments and cash.

For balances of up to $50,000 the interest rate is 3.5 per cent, which increases to 4.3 per cent on balances above that. The interest doesn’t compound – meaning you’ll only earn it on the original balance and not on the interest you’re paid.

Earlier this year, eToro* improved its service by introducing regular investing plans. 

The introduction of interest on uninvested cash is likely to be another bonus for those who already use eToro, but generally there are better options for putting your money to work while it’s uninvested.

> Read more: The best stocks and shares Isas

It’s complicated: eToro hasn’t made interest straightforward

How does eToro compare with rivals for interest on uninvested cash?

It’s complicated to work out whether you’ll get a good deal on uninvested US dollars through eToro*.

The interest you receive steps up based on the value of your investments, plus the fee to convert your funds depends on the eToro Club tier you’re in.

For example, eToro Club’s Silver and Gold tiers are for people with $5,000 and $10,000 of investments respectively – the currency conversion fee reduces from 0.75 per cent to 0.6 per cent for these members. Those in higher tiers will have this fee slashed further.

And because eToro pays the interest on cash within a trading account rather than an Isa, it’s not protected from tax.

Other platforms are far more straightforward – a selection of the best options are below, but keep in mind the rates are all variable.

Trading 212* is a top choice, paying 4.05 per cent AER (annual equivalent rate) on uninvested pounds and 4.1 per cent on uninvested dollars with no requirements on the level of your balance. Interest compounds, there are no account fees, plus currency conversion costs less than eToro at 0.15 per cent.

AJ Bell Dodl* gives you 4.32 per cent AER on cash in your stocks and shares Isa or Lifetime Isa, but this is reducing to 4.06 per cent from 1 September. The platform charges 0.15 per cent annual fees, with a minimum fee of £1 a month.

IG* pays 4 per cent AER on your pounds up to £100,000. It doesn’t charge account fees, but to get the monthly interest you must have either traded or held an open position in the month.

In terms of cash Isas, CMC Invest* currently pays 4.59 per cent AER – but keep in mind your Isa allowance will be affected when moving money between different providers.