Saxo Markets will stop paying interest on free cash balances below £10,000 but is not capping higher interest rates for larger customers. Free cash is classified as the excess cash on an account that’s not invested or being used as margin.
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Clients can earn interest on the unused cash in their accounts
The broker currently pays interest on unencumbered balances on all accounts, based on a markdown to the bid side of its internal funding rates.
However, things will change from April 1st and the changes are worth being aware of.
For example, clients who have free cash balances of less than £10,000, will no longer receive interest payments on those balances from the start of April.
Clients who hold balances of £10,000 or greater, including foreign currency equivalents, will receive interest payments under the new regime.
How much interest you receive will depend on how large your balance is, or as Saxo Markets puts it “the more you deposit, the higher the rate you will earn”.
Some accounts will earn more deposit interest than others
Accounts that hold more than £100,000 and more (or the equivalent in a foreign currency) will earn the best rates and there is no upper limit to how much you can deposit with the bank.
Nor are there any lock-in periods, and the free funds in an account can be withdrawn or invested into markets at any time.
Saxo Markets’ interest rates will be calculated daily, referencing SONIA, the Sterling Overnight Index Average.
An interest rate benchmark calculated by the Bank of England, which has largely replaced LIBOR.
Saxo currently tiers its interest payments on free cash balances, based on its Classic, Platinum and VIP account pyramid.
With the Classic account receiving the Saxo bid rate -3.00%, free cash balances held in a Platinum account receive the Saxo bid rate – 2.0%, whilst VIP accounts get the bid rate less -1.0%.
Saxo Markets hasn’t explained why they are making the changes or the thinking behind them.
And, as with their tiered accounts and commission structure, it’s unclear to me how this new system, which excludes clients with fewer than £10,000, complies with the FCA’s TCF or Treating Customers fairly regime.
Or, how it will sit within the FCA‘s new Consumer Duty guidelines, which will come into effect later this year.