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2.3 percent on call money – these are the side effects of the interest rate race

A classic investment becomes a weapon in a young industry: The German neo-brokers – providers of apps for stock market trading – advertise to customers with striking interest rates on call money.

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2.3 percent on call money – these are the side effects of the interest rate race

A classic investment becomes a weapon in a young industry: The German neo-brokers – providers of apps for stock market trading – advertise to customers with striking interest rates on call money. It could be the beginning of an interest rate spiral that is confusing for savers. At the beginning of January, Trade Republic came up with a smooth two percent, and now Scalable Capital has overtaken it with 2.3 percent – ​​at least visually. Because the offers are not directly comparable.

Erik Podzuweit, who co-founded Scalable Capital in 2014, said it was quite possible that the neo-brokers would have to outbid each other again and again. "Whether we always have to offer the very best interest rate depends on customer reaction," he said. So far, the broker has competed with competitors such as Trade Republic, Zero (belongs to Axel Springer like WELT AM SONNTAG) and Smartbroker on the amount of order fees for shares, exchange-traded index funds (ETFs) or cryptocurrencies.

However, they now only differ in detail and are often around one euro per order or have been abolished altogether. Therefore, the daily interest rate is now added as a further distinguishing feature - made possible by the interest rate turnaround of the central banks. The neo-brokers are particularly trying to attract new customers who come from the classic banks, which currently offer significantly lower overnight interest rates. The start-ups are therefore also investing in corresponding campaigns.

The renewed interest rate competition is initially advantageous for investors. The resurgence of overnight money, which had almost disappeared during the low-interest phase, promises calculable interest with a secure investment. But the offers are not without pitfalls.

On the one hand, the competition for the strikingly highest interest rate encourages traps in the small print. While Trade Republic offers its two percent interest for a free investment account, Scalable Capital requires a monthly trading flat rate for five euros a month. In addition, Trade Republic pays interest monthly, while Scalable only pays quarterly. The bottom line is that both offers take little. However, Scalable offers interest on up to 100,000 euros in savings, Trade Republic only on 50,000 euros.

For the neo-brokers, the race involves a risk. The campaign with the rate close to the key interest rate only pays off if the new customers remain loyal to the platform for a long time, said Podzuweit. He therefore wants to retain customers with his monthly subscription "Prime" - similar to Amazon with its delivery flat rate "Prime".

If the calculations of the neo-brokers work out, higher risks will also arise for previously conservative investors. The trick: Unlike the classic banks, the money market account for the young providers is also the clearing account for stock trading. In the app, the stock market is always just a tap away. “Historically, it was very difficult for banks to convince call money customers to buy ETFs, for example. It's different with us," says Podzuweit.

ETF savings plans are booming among investors in Germany. Dietmar Deffner talks to Erik Podzuweit, the founder of Scalable Capital, about what ETFs are and why they are so popular.

Source: WELT/ Dietmar Deffner

This is important for the neo-brokers: They earn money on every order through reimbursements from the trading venues - and are therefore very interested in their customers trading often. However, this contradicts the common advice to private investors to act on the capital market with a long-term horizon if possible. The seemingly conservative overnight money investment can thus become an introduction to risky bets. On the other hand, private traders who have already been willing to take risks can take the additional interest on money not invested with them.

Trade Republic has not yet revealed whether the provider is entering the race and is now increasing its offer. The provider generally does not comment on offers from the competition, said a spokeswoman. The other neobrokers are just waiting. Smartbroker does not see itself as a daily or fixed-term deposit provider, said CEO Thomas Soltau: “Of course, we monitor developments in the market and our competitors and would like to pass on cost advantages to our customers. Therefore, there are certainly internal considerations on the subject of interest rates, but for the time being the relaunch of the Smartbroker has top priority.” Zero has not yet entered the interest rate competition. "We are monitoring the current development," said a spokesman.

"Everything on shares" is the daily stock exchange shot from the WELT business editorial team. Every morning from 5 a.m. with the financial journalists from WELT. For stock market experts and beginners. Subscribe to the podcast on Spotify, Apple Podcast, Amazon Music and Deezer. Or directly via RSS feed.

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