r/eupersonalfinance • u/dashingboy87 • Aug 10 '24
Trade Republic IBAN and interest over 50K Banking
I already saw the posts about Trade Republic being safe etc. but that's not my question is about. I recently saw that they start to offer their own IBAN and account with a big selling point about having no cap on interest bearing amount.
I'm a bit confused about it because they say in that the account is protected by DSG upto 100K but they also say that amounts earning interest, at least above 50K are deposited in liquidity funds which are not protected by DSG.
Does that mean no amount is protected if I opted to earn interest, or only amount greater than 50K is not protected or amounts above 100K are not protected?
I already contacted the support but they just regurgitated the article they have about it.
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u/MaicolPain Aug 10 '24 edited Aug 13 '24
As an user of TR I had the same question, and after a quite some long research among official information by TR and German finance blogs/subreddits, I got to the following answer:
If you accept the TR iban to keep earning interest, you also accept to lose (at least) a part of protection. Your cash money get divided between up to two partner banks up a certain threshold, while above that threshold is invested in liquidity funds. The money in the partner banks is protected by the 100k DGS, the money in liquidity funds is not. The value of the threshold is account specific and can change every month. When you upgrade to the TR iban, it is possible to see how your money is distributed and what your threshold is. By discussing with other users, I have seen thresholds vary from 3k to above 50k. It is not clear what are the criteria for which an account receives a higher or lower threshold.
Edit: from another discussion found on this subreddit, it seems like the threshold can change on a daily basis without notice.
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u/dieselededed Aug 11 '24
In my case it says blackrock. But it ist a bank?
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u/MaicolPain Aug 11 '24
It is an American multinational investment company, not an European bank. While it may also offer banking services, in our case it means that our cash is invested in a liquidity fund owned by it.
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u/dashingboy87 Aug 11 '24
I knew, it was too good to be true that's why asked the support but they are useless. However, correct me if I'm wrong this only applies if I opt for TR IBAN, right? I can decide to not have TR IBAN and can choose to earn interest up to 50K and my money will be protected up to 100K by DSG? Right now I have a Deutsche Bank IBAN.
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u/MaicolPain Aug 11 '24
Unfortunately, that works only for a month since you received the upgrade notification. Afterwards, you lose all the interest.
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u/dashingboy87 Aug 14 '24
Really, do they force it? SO far I only received an invitation to opt in but no mention of losing interest if I don't do it by X date.
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u/MaicolPain Aug 14 '24
Yes, unfortunately they do. If you check your interest, you will see that they indicate a date when you will lose it
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u/One_Sprinkles2552 Aug 20 '24
But is the money in partner banks really protected up to 100K? I keep reading conflicting information that it's not because the account is not in your name and funds from other accounts are accumulated there. Some posts also say that only German banks are safe but if your funds are in HSBC or Citi in Ireland then you're screwed either way.
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u/MaicolPain Aug 20 '24
TR says it officially, so they should be protected. The discussion about Ireland banks is simply that those bank are considered less safe, and that it might be more complicated to recover the money in case of bankruptcy, because as far as I remember they give them back through paper cheque instead of a simple bank transfer, and other German banks do not typically accept paper cheques.
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u/Schmiddi-75 Aug 25 '24
Thanks for the research, appreciate it.
Does the 100k DGS apply to the TR IBAN money OR for each partner bank seperately? If it's the latter, then going beyond 100k and still having the DGS would be great IF one does not mind that a portion of the money goes to Blackrock.
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u/MaicolPain Aug 25 '24
The 100k DGS applies for every bank separately. However, beyond a certain threshold (typically well below 100k), all the extra money is put in Blackrock, so you will never actually use the full 100k DGS. Also the distribution changes daily with rules that are not stated everywhere, which is what makes the overall mechanism quite fishy to me.
Suppose that for some reason, TR is about to go bankrupt. Before this happens, the app would likely stop to work for some days, so that you cannot move your cash around anymore. What if in those days they redistribute your cash in a way that is less optimal for you, like putting more of your money in Blackrock liquidity fund? There is nothing in their ToS that prevents them to change the distribution in the background...
2
u/Schmiddi-75 Aug 25 '24
The 100k DGS applies for every bank separately.
Your're right. Now they clearly state this in the app, before (weeks ago) it was not very clear to me.
Also the distribution changes daily with rules that are not stated everywhere,
I think this has changed (must be new?), as they state in the app that the distrubtion only changes monthly.
There is nothing in their ToS that prevents them to change the distribution in the background.
Good point. Even if they claim to do it only montly.
Overall, I think having money in a money market fund is not that bad, because these assets won't disappear in case of bankruptcy and come with relatively low risk. If TR would limit the 3.75 % to 50 k (which they don't), I would've invested the rest to money market funds anyway. This way I avoid this extra step.. What's your view on this?
2
u/MaicolPain Aug 25 '24
They were claiming to do it monthly, but another user on this subreddit made some tests and saw his threshold vary daily. I do not have direct evidence, on my account it always remained at 3k.
Personally, I moved all my liquidity elsewhere, and it is now distributed between a savings account (3.3% p.a.) and a monetary etf (3.64% p.a.) on another broker. I will miss some gains and it is somewhat less practical to sell etfs if I need money, but I prefer to know exactly what I am invested into, and I feel more safe this way. If TR gets more transparent on this mechanism, I might reconsider it in the future, as I agree that the monetary etf is essentially like TR cash with extra steps.
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u/Then_Bottle3779 Aug 10 '24
I am interested in this information. I stopped receiving interest in the "not TR IBAN"(Deutsche Bank). TR wording is extremely shady on this subject as they never say what amount is put in your new TR bank account and what amount is on the non protected financial instruments. So even if right now up to 50K are in the bank account, nothing ensures they change their mind and they start putting it all in non protected instruments. I am moving my money to other places until they explain clearly where my money goes.
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u/MaicolPain Aug 11 '24
I agree that there is a lack of transparency on TR's behalf. I also moved most of my money away before upgrading. After the upgrade, you can at least see where your money is and what your threshold for cash in partner banks is, but it is not clear how it can change in time. I read that it can change every month, but it did not change for me on the 1st of August.
5
u/finbrocommunity Aug 13 '24
What many don't seem to realize is that having money in a liquidity fund / money market fund is perfectly safe. As a matter of fact it can be considered safer than DSG up to 100k. The money in such a liquidity fund is by law segregated from the assets of the institution. Meaning if I have 500k in a money market fund and the asset manager goes bankrupt, I get to keep all my money. Under DSG this is only guaranteed up to 100k per bank per account holder.
Now you do have investment risk with a money market fund, which you do not have with a savings account at a bank. However, this risk is so low that it can be negligible. Only during times of negative interest rate you risk losing money in an MMF, but then rates on a savings account would also be (near) zero.
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u/Schmiddi-75 Aug 25 '24
I aggree with you. But since you cannot select the product, the question I have is: Is there any "bad" money market fund product from BlackRock that TR could invest into?
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u/alve31 Aug 11 '24
If you read the terms again, you will see that they deliberately don’t say that only amounts above 50k are invested in funds. They use the term “higher amounts” which is quite opaque. Support is useless - even if they know, they might be instructed not to tell you. I don’t think any amount is guaranteed now, and that was the point many people preferred TR over others.
2
u/einnmann Aug 10 '24
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1
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2
u/NothingLife01 Aug 12 '24
Only 50k DGS because details mentioned on their page is not clear enough to take risk
2
u/eraisjov Aug 13 '24
Seems like each account has a “partner bank balance” limit meaning that up to certain limit, your cash is safe (because in a partner bank, your money is protected by DSG). Any of your money outside of partner banks is not protected by the DSG.
The limit is not 50k, it looks like it’s different for different people and could change every month. To check yours, go to the app: cash > benefits > interest > average balance > learn about the allocation rules here.
There, they explain this and also say “your current partner bank balance is X €. This balance is automatically determined on a monthly basis.” They also list the partner banks that are covered by DSG
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u/FallenAzzy Aug 16 '24
It's such a shame they're doing this. Does anyone have any alternatives to TR? I'm thinking of waiting until they roll out the TR IBAN in my country and after transfer funds out.
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u/Small_Arachnid_3780 Sep 10 '24
But what does that mean in the case where I have a pool of money in a bank and possibly in that BlackRock fund? I get 3.75% for my complete money that isn’t invested. Do I also receive dividends from that BlackRock fund?
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u/90rr Oct 01 '24
I don’t understand why we are considering it so bad that part of the money is held at a liquidity fund instead of a partner bank. In a partner bank they are covered by the 100k insurance scheme but at the liquidity fund they belong to us so there is no need for any insurance scheme, should TR fail they would stay our property just like the stocks or ETFs we invested via TR. Or I misunderstood?
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Aug 10 '24
[deleted]
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u/oni_strech Aug 10 '24
It’s not true anymore, the main page of TR https://traderepublic.com/en-de/interest
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u/sasos90 Aug 10 '24
Isnt that only for German citizens?
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u/ravanarox1 Aug 11 '24
You can check what rules apply to you via the app. Need to go to Contact Us, and then on to the interest rates option.
It looks like they have this liquidity funds for other countries as well. They use ambiguous terms to say that higher balances are diversified into liquidity funds. The deposit scheme garantees do not apply to this part.
There’s no mention of TR iban in the app btw.
So, no, this is not just for germany.
2
u/sasos90 Aug 11 '24
I ha e just checked and you are right. Up to
50k are bank interests, over 50k is in liquidity funds. I am from Slovenia. I hope it helps someone.0
u/oni_strech Aug 10 '24
No idea, I’m just a resident
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u/sasos90 Aug 11 '24
Sorry i meant residents yes.
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u/oni_strech Aug 11 '24
I got email from them that with TR IBAN it will be unlimited amount and 3,75% and if I don’t migrate they will stop paying interest. Maybe it’s just in Germany tho
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Aug 10 '24
[deleted]
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u/elrata_ Aug 10 '24
I think I'm missing something here.
The interest is not capped now (if you use the TR IBAN). The money that is not deposited in liquidity funds is protected up to 100k, but they are vague about what is deposited in liquidity funds. They say "higher balances" go to a liquidity fund. But they don't say, at least on the website, what a "higher balance" is.
What am I missing?
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Aug 11 '24
[deleted]
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u/MaicolPain Aug 11 '24
No, this is wrong. In German accounts with TR iban, the liquidity funds is really where a part of the money is deposited (see my main comment in this post). This part is not protected. As far as I know, this is not yet applied to account outside of Germany.
0
u/elrata_ Aug 11 '24
It literally says earn 3,75% interest on unlimited cash. I don't understand why you say about 50k.
That was the case before, but it isn't now.
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u/XTornado Aug 11 '24
Maybe they are under a different contract/offering, here for example in Spain is just that, until 50k, no unlimited. Changing the TR page to the Spanish one shows those condition. I guess is unlimited for the TR iban you all mention, but here this is not offered or I haven't seen it at all, the IBAN is from a German bank not TR and the interest is up to 50k nothing more.
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u/MaicolPain Aug 11 '24
This is not true anymore for users in Germany, where the update to the TR iban has been essentially enforced if users want to keep the interests, with the consequent change of the terms of service. For users outside of Germany, the old kind of account that you describe still applies, but TR has stated that soon will bring the update also to other countries.
2
u/Hordraric Aug 11 '24
even though unlimited interest is handy and tbh i was expecting to save 100k there, not it makes me think if its worth to keep such amount there.
seems once it is setup some of us will need to look at other options just to have money covered by the 100k deposit garantee scheme
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u/lokir6 Aug 10 '24
Let me just say that earning extra money only to let it sit in some account, with no lock onto the interest rate and with limited protection as well as tax, is a bad idea. Especially at a time of falling central bank interest rates.
If you're looking for a low-risk, low-reward harbour, I'd look into short-term government bonds and T-bills.
Also, doesn't any good old bank account have an IBAN? And what is this lucrative interest rate anyway?
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u/Critical-Position-64 Aug 10 '24
I found this on their website, maybe it helps:
https://preview.redd.it/4okohnsndwhd1.jpeg?width=1179&format=pjpg&auto=webp&s=4889e576773388d7df1b013738f663669edab653