Posted by William Charles on December 15, 2018
Savings Accounts

Published on December 15th, 2018 | by William Charles

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Robinhood To Make Changes To 3% APY Account Ahead Of Launch

Earlier this week Robinhood announced they would be offering a 3% APY checking & savings account. Given that this is almost 0.5% higher than the next best high yield savings account there was a lot of interest. The issue was that this account didn’t come with the regular FDIC or NCUA insurance you see on most checking/savings accounts but with SIPC insurance instead. The head of SIPC came out and said that SIPC insurance wouldn’t cover this type of account.

Since then Robinhood has deleted the original blogpost and social media posts regarding the new product and issued a new blog post stating that they plan to work closely with regulators and that marketing materials, including the name of the account will be changed. The Robinhood website now also states that there is a cash management account coming soon, so it’s safe to say that the rebrand will be cash management instead of checking/savings. ‘



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JT
JT

Mild shock

Oliver
Oliver

Thanks DoC for keeping us updated on this!

mct
mct

They lied about being covered by SIPC insurance, no thanks. 3% APY isn’t great right now anyway. Offer 5% APY or more and prove it’s insured and I might consider it.

Matt
Matt

They didn’t really lie. They are already covered by SIPC. They do need to make some structural changes to their proposed account offering structure in order to make sure funds are fully and unambiguously covered by it however.

3% is a great rate and I’m going to enroll in this.

SIPC doesn’t operate the same as FDIC insurance and RH marketing didn’t seem to get the memo. Their promo materials marketed this as a checking/savings product. It needs to be a cash management account to be covered. And the notional intent of the account has to be to manage investments. It cannot be solely a bank account.

They’re learning quick. They can totally make this work out though. It’s not like they tried to screw over people. They’re a disruptive startup. They break things. They make new market products. Small prospective missteps like this on a product they won’t even launch until next year is hardly a deal breaker.

mct
mct

3% APY is a deal breaker for me.

Txstars
Txstars

Lol announcing the launch of a product without consulting the regulators and making the product uninsurable is not a minor misstep.

docbjg
docbjg

Like Uber? OTOH, Uber wasn’t asking you to trust them with your money.

Ann
Ann

Just your life! 😉

Sarah
Sarah

This is not a “new market product.” This is an offering in a highly regulated area where the meanings of the terms they used was well-known, as was the limits of the “insurance” purported to be offered. There was never any uncertainty about this, unless you think “we want things to be a certain way, so we’ll just go ahead and sign up customers on that basis without checking” counts as actual uncertainty. This signals gross incompetence AT BEST.

But, hey, a whole 50 bp more than a high-yield savings account and they’re DISRUPTORS, so you still want to give them your money. You know what? Go ahead. People who think like you are going to lose or waste their money some kind of way, might as well be this one.

Boy, I wish I didn’t have a conscience. I could be rich as hell.

ww
ww

dream on

Snorlax
Snorlax

They didn’t lie, they were mistaken that their current insurance would cover this new product, they assumed without checking with the regulators. That’s incredibly foolish and telling in and of itself, but they didn’t lie.

mct
mct

Why didn’t they fact check? A company this size just assumed it was covered? Go ahead and give your hard earned money to a company that just assumes things because that’s how companies should be run.

Yikes
Yikes

Agreed. Had a bank done that it’s called fraud. They advertised a product that has legal terms around it (savings / checking) and then mislead about the SIPC coverage. I am all for financial innovation, but in a highly regulated environment the “move fast and break things” mentality doesn’t work.

You have to hold FinTech to the same standard you would WFC / JPM / BofA etc.

I get that they may not have known that there was a difference but that’s what the lawyers are for.

rick b
rick b

Co-CEOs? LOL, two shady nerds cook this up in their basement…what could go wrong

Keith
Keith

Or right.

Paul
Paul

Have you never heard of Robinhood? Do you live under a rock?

rick b
rick b

Never heard of them except on DoC. I live in a high-rise in a hipster urban hood…not under a rock. I just don’t care for sketchy..poorly planned, financial startups.

Tommy Chen
Tommy Chen

you may live in an urban highrise but you’re still not very informed. robinhood is not no fly by night startup. they have been around for years and have eclipsed many breakages like e-trade in terms of customers already.

Joe
Joe

They’re Billionaires tho…

Wilson
Wilson

that’s pretty much the story of most big tech companies, though they prefer the garage over the basement

Ann
Ann

This obviously was badly planned, but the company is hardly just 2 guys, Robinhood has several hundred employees and millions of users.

JL
JL

LOL.

Well, that was embarrassing.

tolikfox
tolikfox

This is shadow banking territory

Frank
Frank

#buzzword

Mike M.
Mike M.

This is basically a money market fund. The only real risk to your account is a true blue depression like market crash. In which case your funds would probably not be insured and you could risk breaking the buck.

If that is worth 50-75 bps than this is a good deal.

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