Posted by Chuck on October 8, 2019
High-Yield APY Accounts

Published on October 8th, 2019 | by Chuck

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Robinhood Relaunches Cash Account – This Time with 2.05% APY & FDIC Insurance

Robinhood has relaunched their cash account, this time with a current APY rate of 2.05%. They’ve also added FDIC insurance to the account as part of the relaunch.

You can join the waitlist here.

The account offers FDIC insurance on up to $1.25M, as part of the companies partnership with 6 different banks. The debit card associated with the account runs in partnership with Sutton Bank. You can opt-in to have uninvested cash from your brokerage account swept automatically to the savings account. Like all variable rates, the 2.05% can go up or down over time.

They initially unveiled their hybrid checking/savings account to much fanfare with a 3% APY and no FDIC insurance, then it became dubious whether their SPIC insurance would cover such an account, then they pulled the idea with plans of revamping. We’re now seeing what the revamp looks like, including the lower rate and the addition of FDIC insurance.

To be fair, rates have dropped roughly .5% since their initial launch across the entire savings account industry, yet their rate dropped even more than their initial 3% shocker rate. During their initial launch, they were a solid .5% ahead of anyone else in savings rates (top rate then was ~2.5%); now they aren’t even near the top. Apparently, the additional cost of joining up with FDIC banks forced them to push the rate lower.

It still could make sense for someone who uses Robinhood for trading – I wish my brokerage had a high yield savings account; and then it could make sense for anyone due the decent rate. They aren’t at the top of the list of rates, but it’s hard for certain which of those banks at the top will keep the high rates long term. When comparing them against the likes of Ally and Discover who maintain good rates over the long haul, Robinhood compares favorably at .15% above with Ally and Discover currently offering 1.90%. Assuming Robinhood maintains the high rate for the long haul, which is what I’d expect, it could be a nice option.

This account could amount to saving the company in a certain sense as many brokerages have recently stopped charging for trades, something that was always Robinhood’s biggest attraction. Now, being able to have funds auto-sweep into a high-yield savings account might become the biggest attraction.



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David
David

Hah – Not this time Robinhood. I don’t trust you….

Kosh
Kosh

Haha yeah thats a “no” for me dawg. Its a wrap Robinhood. Moving all of my funds to Schwab now.

GoldBonds
GoldBonds

Is Schwab paying the fee that robinhood charges you to transfer out?

Daniel
Daniel

There’s a fee?

Max
Max

Yes, Schwab reimburses up to $49 of any other broker’s fees. I transferred a Merrill Edge account and they promptly issued the credit within 48 hours

Vy
Vy

Waitlist is about 87,700+ long at the moment.

For the same APY as Wealthfront, I am not going to be holding my breath.

JoeHx

I’m currently #95,735 on the waitlist. I’m not holding my breath either. I can’t even remember where I was on the waitlist for the scrapped product.

AndreRamirez
AndreRamirez

Keep in mind that Robinhood is probably in a state of panic right now because their sole unique selling point (commission free trades) has become the new industry standard overnight. I can guarantee you that they made this announcement in the hopes that it would help damage control the situation a bit.

The reality is, Robinhood has done virtually nothing to improve its customer service, barebones UI, restrictive pre-post market trading window, frequent downtime, etc. etc. for years now.

Maybe tacking on this average interest rate will help curtail some of the competition, but IMO its too little too late, there’s no point to their platform when you can get all of their features from other established companies now.

joE
joE

I wish they were a publicly traded company so I could short them!

Hari
Hari

Looking at TD Ameritrade’s decline when Schwab announced the move, I’m confident Robinhood would have declined more than 50% price. Probably a lot more than that.

Mark

Their UI/UX is still miles ahead of the competition, and that is a huge factor in adoption.

AV
AV

The only reasons other companies are doing the same of robinhood is because, robinhood exists, other than that we will not have 0 commission in other accounts. The same happens to Moviepass and now is dead. But I’m glad that robinhood is trying to do something new and I hope other companies also copy this model and give something competitive on the money that is not invested.

Matt
Matt

I doubt Robinhood made this announcement solely as damage control. You cannot get a bank charter overnight. So this was in the works for a while now. Remember that the company tried to launch this product late last year without a bank charter and got pushback for it.

(I assume Robinhood has a bank charter now because the cash account is FDIC insured. I could be mistaken about the bank charter though. I’m not a financial regulation expert or anything like that. But the Robinhood cash account is FDIC insured at least.)

Steve

They’re not a bank. https://support.robinhood.com/hc/en-us/articles/360034673051 “swept, or moved, into deposits at a network of program banks”

Matt
Matt

Thanks for the clarification, Steve. Much appreciated. 🙂

Kid Lightning
Kid Lightning

Wow over 88,000 people already!

Max
Max

Oh, they simply reintroduced something unoriginal and that sucks this time. Good job Robinhood. If you’re going to put in this little effort at creating anything unique, you really should’ve just scrapped it.

Tim
Tim

Surprised they would offer to auto-sweep cash balances…Isn’t interest on uninvested balances one of the biggest ways brokerages make money?

Emerson
Emerson

You’re right, but since when has robinhood been in the business of making money?

It’s just another Silicon Valley disruptor focused on building a brand and a cult following and then evaporating.

TheJstandsforJ
TheJstandsforJ

Just another WeWork, Uber, or Lyft. Its easy to increase sales when you charge under cost and make your investors pay for it.

aquac
aquac

Robinhood single-handedly forced the Brokerage Dinosaurs to eat their pride. No Fee trading is mainstream now. ‘

Why this resentment when a few companies let you keep money in your own pocket!

ap
ap

These are the same people that think they are warren buffet when they invest in the S&P day after day. This guy is mad that investors are paying for us to have cheap services – and this is a bad thing for us, the consumers of said product? We’re on this site to steal money from bank sign ups for chirsts sake..

Joe
Joe

I joined the waitlist because I like collecting debit cards…

Robinhood is done after the Schwab/Fidelity/ETrade no fee announcements. I won’t put a penny on here, just for shits and giggles… there’s not much left in the churning world for me besides MS anymore.

adam d
adam d

there always is, open an LLC for $100 a year and churn an easy $2500 a year with a dif ein #

Kid Lightning
Kid Lightning

could you explain this?

cnqr
cnqr

Is the card still going to be titanium?

I couldn’t find any information about this. Looks like they removed the only good thing out of this.

Bob
Bob

No idea why people are being negative. If we get account numbers, this is more of a competitor to SoFi (minus the ATM rebates). It offers a higher rate and they maybe won’t lock your account like SoFi tends to do.

Rich
Rich

What do you mean sofi accounts can get locked? I just got one and am still feeling it out.

TheJstandsforJ
TheJstandsforJ

Wow, I can get like 0.3% more at Robinhood than I can at Schwab which also has free trades, but has a functional web page, mortgages, customer service staff, and I can visit a physical location. I am impressed…..

NOT

chris
chris

Where does Schwab have a 2% savings account?

SC
SC

SWVXX

TheJstandsforJ
TheJstandsforJ

Bingo, Fido and Schwab both offer competitive prime money market funds. Ultra-short term, highly collateralized and insured cash investments. The incremental value from this Robinhood offering is just not there.

Matt
Matt

Schwab’s Money Market Fund is not insured. Schwab is a member of SIPC, of course. And SIPC will likely (though not guaranteed) make you whole if something happens to Schwab. But that’s not the same being backed by the full faith and credit of the United States government with FDIC insurance (as the Robinhood account is).

You can see that right on the Schwab page.

“Not FDIC-Insured · No Bank Guarantee · May Lose Value”

https://www.schwabfunds.com/public/csim/home/products/mutual_funds/net_flows.html?symbol=SWVXX

Matt
Matt

(Too late to edit my previous reply about your Schwab Money Market Fund not being FDIC insured and SIPC membership.)

Continuing my other reply:

SIPC is also very much underfunded. SIPC has the funds to make whole customers of a smaller brokerage that goes bankrupt, but maybe SIPC won’t have the funds to fully cover customers is a brokerage as large as Schwab had financial difficulties. This is especially true if whatever causes financial difficulties for Schwab also causes financial difficulties for other brokerages at the same time.

There is no reasonable-risk of Schwab going bankrupt or anything like that. So you likely don’t need to concern yourself much with SIPC. But it’s important to keep these things in mind when thinking about what is and is not insured by the FDIC

The Robinhood cash account is insured by the FDIC. Your Schwab Money Market Fund is not insured by the FDIC.

Enrico
Enrico

No one forces you to like it or take it.
Schwab just got free trades for all stocks, which it didn’t have before.

Who goes to branches and if so, how often? Waste of time.
Who cares about Mortgages from Schwab? Never seen them pop up at any rate comparison, as being competitive.

Lets see when Schwab lowers their interest rate, Ally did already.

Stan
Stan

it’s easy to be a naysayer, but i actually use Robinhood for trades and i like it. the auto-sweep to a 2% account is a nice addition.

BrokerMania
BrokerMania

Has anyone used Robinhoods option trading platform? They are still ahead of other brokers with no contract fees, curious why they don’t advertise this more. Would be great to hear from option traders, thanks.

Frank

Go to r/WSB lots of people buying options

Jon
Jon

I only see monthly options on puts/calls. Am I looking in the wrong spot or do they not offer closer expiration dates like weeklies, etc?

Dheeraj
Dheeraj

They most definitely offer weeklies. If not, you wouldn’t see some of the great memes at wall street bets.

Nick
Nick

Probably not worth bothering with. As fed rates drop lower this already mediocre offering will only get worse.

btw. In case anyone is not aware or thinks RH is solely dedicated to their customer’s benefit, RH’s ‘free’ trades were never actually free either (if you are curious you can look up on how nasdaq makes money, same general idea for RH).

Jon
Jon

True but also a bit misleading since nearly every other broker makes money the exact same way and (used to) charge trading fees on top. And one of the only ones that doesn’t make money this way (Fidelity) has not yet followed suit for free trades

Matt
Matt

Mediocre? What other brokerage is sweeping uninvested cash into an account that pays a 2.05% APY (with no minimum threshold requirements)?

I’m with Interactive Brokers and IB is paying me exactly zero for my uninvested cash (because I don’t keep enough uninvested cash in my brokerage account to meet that USD $10,000.01 threshold for the 1.32% APY).

Bob
Bob

Not only that, but this is essentially a 2% checking account. It has a debit card and bill pay.

Nick
Nick

Good point.

For a company who had the audacity to false advertising ‘insured financial product’ and force SPIC to come out and deny that, using ‘Mediocre’ is too gross an overpraise;)

But If you are enjoying their ‘wait list’ while they inevitably drop the rate towards 0%, that’s more power to you.

Matt
Matt

Alright. Cool.

MUNGO
MUNGO

Everyone is forgetting 1 of the main benefits of Robinhood is the ability to trade Crypto for free. I will keep my account mainly for that purpose, although I do also trade some stocks & options through them. I also have brokerage accounts with all the other major brokers.

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