Keep in mind that any metal in direct contact with water is going to corrode. Add in an electric current, and even stainless steel can corrode and pit.
As for leakage to ground: If the power source for the Arduino is isolated, there can be no leakage to ground. There would be no complete path.
I prefer to use insulated wires and measure the capacitance between them. This does not rely on conduction of the water, it relies on the dielectric constant of water being greater than that of air.
For each of the electrodes (for lack of a better word), I fold a piece of wire in half. That way, I don't have a sealed end under water that may lose its seal. If you coil the wires around something, it causes the rate of increase in capacitance when under water to increase.