Scalable Capital vs. Trade Republic: interest only as a loss-leader offer?

The interest rate war is officially on. After Trade Republic was the first neo-broker to introduce interest rates in January 2023, Scalable Capital now also offers overnight interest rates. But the 2.3 percent at Scalable Capital only seems like the better choice at first glance. A comment.

Scalable Capital: Interest rate of 2.3 percent from February 2023

“Let the games begin”: This famous quote fits very well at this point. Because the wooing and wrestling for new customers is actually going into the proverbial next round.

After the Berlin neo-broker Trade Republic has been offering all customers exactly 2.0 percent interest on the balance since January 2023, the Munich competition for Scalable Capital is now following suit.

As the company publicly announced on January 26, 2023, Scalable Capital will also start earning interest on February 1, 2023. More precisely: 2.3 percent on the creditwhich customers have with the broker – but by no means for all users.

Trade Republic vs. Scalable Capital: Which neo-broker has the better interest rate offer?

Many investors are now asking themselves: Are the Trade Republic interest rates or the Scalable Capital interest rates better? As is so often the case, the answer is: It depends. A look at the details is also crucial. We take a close look at the two offers and compare the broker rates in three categories.

1. The amount of the interest-bearing balance

In the first category, we look at the balances for which the respective offers apply. Trade Republic sets the limit at 50,000 euros. Scalable Capital offers interest up to a limit of 100,000 euros, which in turn corresponds to complete deposit protection.

That means: All money that is over 100,000 euros would not be protected by law in the event of Scalable Capital going bankrupt and would therefore be gone. Nonetheless, the first point clearly goes to Scalable Capital. This is especially true for all investors with a large investment amount.

Trade Republic vs. Scalable Capital: 0:1

2. The payment of interest

In the second step, we want to look at how the compound interest effect behaves at the two brokers. There is a small but subtle difference here. Scalable Capital pays 2.3 percent interest. However, the payment is only made quarterly.

The 2.0 percent interest that Trade Republic pays is paid out each month, making the compound interest effect much more evident.

Without calculating the costs of Scalable Capital, investors in Scalable Capital have after three months and an investment sum of 10,000 euros 10,057.50 euros. At Trade Republic, there have already been three times 20 euros – i.e. 60 euros – in the same period without compound interest. This point therefore goes to Trade Republic.

Trade Republic vs Scalable Capital: 1:1

3. The cost of the interest rate offerings

Finally, we want to compare the costs incurred. At Trade Republic, there are no additional costs for using the interest rate offer. All users get access to it free of charge (i.e. for 0.00 euros).

It’s different with Scalable Capital. If you want to receive the Scalable Capital interest, you have to new Prime Plus subscription to lock. Cost point: 4.99 euros per month or almost 60 euros per year. This sum also has to be recovered through the interest.

Of course, the Prime Plus subscription with no order fees offers an additional incentive for investors who trade a lot. With the exception of interest, however, all advantages are also available in the Prime subscription for EUR 2.99 per month.

And it is also clear: If you have a lot of money in your clearing account, you are more likely to be tempted to buy shares with free trades than if you only have the necessary money there. So the point goes back to Trade Republic.

Trade Republic vs Scalable Capital: 2:1

Conclusion

For the majority of investors, Trade Republic’s offering is financially better suited.

Only those who trade an insane amount – and accordingly often pay one euro order fees at Trade Republic – or who can put a lot of money unused in their clearing account – from 20,000 to 25,000 euros Scalable Capital slowly withdraws from it – is better served with the Munich broker.

Or to put it another way: Anyone who trades little or wants to deposit less than 20,000 euros with their broker benefits more from the Trade Republic interest rates.

Scalable boss wants to recruit members

In addition, Erik Podzuweit, founder and co-CEO of Scalable Capital, officially admits that it is in fact a promotional offer for new customers. “We make PRIME+ membership so attractive that not becoming a member is almost irresponsible.”

And anyone who hears and reads such advertising sentences should be doubly careful. For many small investors, it looks more like a loss-leader than a serious alternative to start with. The future will show whether this will remain the case.

Note: This article is a comment and reflects the opinion of the author. Comments explicitly do not represent factual reporting. We explained the background to the comment style in another article.

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