> For the complete documentation index, see [llms.txt](https://unflat.gitbook.io/unflat-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://unflat.gitbook.io/unflat-docs/basics/how-unflat-earns-higher-rates.md).

# How the Rate Is Set

Where the yield comes from, and who sets the rate.

## How a bank sets its rate

On a bank deposit account, the bank sets the rate. It lends deposits on and keeps the difference between what borrowers pay and what depositors get, which pays for its costs and profit. In August 2026, euro area banks paid households 0.29% on overnight deposits and 2.18% on new term deposits, and charged 3.60% on new loans for house purchase ([ECB, 1 October 2026](https://www.ecb.europa.eu/press/stats/mfi/html/ecb.mir2610~8e4898ad10.en.html)).

## The DeFi lending alternative

DeFi lending protocols like Morpho are software that matches lenders and borrowers. The rules are written in code (smart contracts) and execute automatically. Borrowers pay interest to whoever supplied the money, at a rate the market sets, minus the vault's fees.

On unflat, money in Savings is lent through Morpho vaults on Base, run by third-party curators, today Steakhouse Financial and Gauntlet. The curators choose the markets each vault lends to and charge fees, deducted before the rate. unflat charges no fees. Covered money earns a slightly lower rate.

Money in Savings has earned about 5% a year so far in 2026, variable. That is the average APY of Savings (USDC) without cover, from January to September 2026. Past rates do not predict future ones.

## Why borrowers pay interest

Borrowers use these markets for practical reasons:

* **Liquidity without selling:** getting cash without selling the crypto assets they hold
* **Arbitrage:** trading on price differences across venues
* **Capital efficiency:** putting idle assets to work

In each Morpho market, an interest rate model sets the rate from how much of the market is lent out. When borrowing demand is high, the rate goes up. When it cools, the rate goes down.

## What happens if a borrower can't repay

Every loan is overcollateralized: for example, $15,000 in ETH to borrow $10,000 in USDC. If the collateral falls below a set limit, the smart contract lets a liquidator repay the lenders and take the collateral. If prices fall faster than liquidations, a loan can leave bad debt, and lenders take the loss.

## unflat and a bank deposit account

|                       | unflat                                                      | Bank deposit account                             |
| --------------------- | ----------------------------------------------------------- | ------------------------------------------------ |
| **Who sets the rate** | The lending market, not unflat; variable                    | The bank                                         |
| **Lock-up**           | None                                                        | A fixed term, on a term deposit                  |
| **Interest**          | Accrues every second                                        | Credited at intervals the bank sets              |
| **Transparency**      | Deposits, yield and cover are public on the Base blockchain | Published financial statements                   |
| **Deposit guarantee** | None                                                        | National scheme, €100,000 per depositor per bank |
| **Custody**           | Non-custodial: a wallet only you control                    | The bank holds your money                        |
| **Currency**          | USDC, a dollar stablecoin                                   | Euro                                             |

{% hint style="warning" %}
**The rate is variable.** It moves with supply and demand in the lending markets and can go down. No return is guaranteed.
{% endhint %}

## A note on the trade-off

The two carry different risks. A national deposit guarantee scheme covers bank deposits; nothing equivalent covers your money on unflat. unflat is a technology platform and is not a bank or a financial intermediary. Funds deposited through unflat are not covered by deposit guarantee schemes (FITD or equivalent) and are subject to risk, including loss of principal. Never deposit money you cannot afford to lose. Read [Risks and Considerations](/unflat-docs/basics/risks-and-considerations.md) first.