In December last year fee free mobile trading platform Robinhood announced they would be launching a 3% APY high yield checking account. The account came with no FDIC or NCUA insurance (usually standard for a checking or savings account), Robinhood claimed that SIPC insurance would cover this account only for the head of SIPC to say that this is not true and that Robinhood had not only not cleared this product with SIPC but hadn’t even approached them to see if this type of account would be covered.
According to Fortune the company’s COO Gretchen Howard said that “We’re going to come out with a cash management account soon” at the recent Fortune’s BrainstormTech conference in Aspen. Howard says that the new product isn’t a bank account at all and will be a cash management feature within the existing brokerage account that all Robinhood customers have. Howard also said that the company had filed for a federal bank charter (needed to offer a traditional banking product such as a checking account).
At this stage a number of things are still incredibly unclear:
- Will this new account still offer 3% APY? In recent times we’ve seen high yield saving account rates drop.
- What insurance if any will this product provide? I assume Robinhood is trying to position this as a cash management account so that it’s covered by SIPC but it will be interesting to see if they have actually consulted anybody at SIPC to ensure this type of account does qualify.
I’m skeptical until we get some firm details. I personally wouldn’t be leaving a large amount of funds in an uninsured account and I think Robinhood’s original botched roll out should have alarm bells ringing for consumers. That being said, a 3% rate is significantly higher than anything else on the market and I can easily see some consumers taking this risk.
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I would not trust Robinhood with my money. I have an account with Robinhood and currently holding about 40K in stocks. There were a few times that I needed help, Robinhood does not have customer service phone you can call. I tried sending them emails only to get a reply back 2-3 days later that didn't even answer my original question.
That announcement last year was a super fun dumpster fire to watch, so I'm looking forward to this. Getting my popcorn ready.
That being said, I have a Robinhood account--it's basically my gambling money--so I may try it out when they launch it, assuming it has some kind of insurance (preferably FDIC by sweeping it into accounts with FDIC-insured banks).
churners on this blog have more knowledge on banking than the COO, amateur hour, i used them in the past or some PM etfs, prob will again, but wouldnt leave a significant amount with these clowns.
It was such an amateur mistake that the COO should have been fired! Anyone with half a brain would have figured out the original product design would not have worked with the regulators/insurers! It was actually frightening for me as an investor to see the lack of market and product knowledge, as well as apparent lack of compliance procedures!
They were told by their lawyers and compliance people. They just decided to move forward the original time because hubris.
I agree with William Charles' skepticism here. After reading this part: "The company subsequently clarified that the new product will be a cash management feature within customers' existing brokerage accounts rather than a stand-alone account," it got me thinking about SIPC coverage.
So, say you open a Robinhood Brokerage Account, and alongside you get a Cash Management Account. Would the SIPC cover your Cash Management account if you never use the money in said account to buy stocks or any other securities via your Brokerage Account?
Would Robinhood be OK with people who open both a Brokerage & Cash Management Account but never utilize the Brokerage Account part? It will be interesting to see how it all plays out.
Robinhood should have no problem with customers opening both a Brokerage & Cash Management account and never using the Brokerage account.
Charles Schwab has the same requirement that the customer must open Brokerage account and a Checking account at the same time. They do not require the customer to use the Brokerage account at all.
In order to offer a high interet rate, and still maintain the level of liquidity that is needed for a cash-sweep, Robinhood will have to invest in some very juicy (i.e.risky) very short-term securities - meaning credit and leverage risks (remember 2008?). The SIPC will not cover losses if the cash account "breaks the buck" (to borrow a term from money-market funds).
Not really part of this particular topic, but would you all recommended Robinhood compared to TD Ameritrade for <12 month stock picking? I’ve been using Robinhood the last 3 months with success but this is my first time ever putting in money into stock trading. I’m buying only blue chips to minimize risk of loss
I think commission based brokerages are a scam for 90% of traders unless your a warren buffet style investor (buy and forget) and also have his kind of money...
Commission free is the way to go. However I wouldn’t recommend you go with Robinhood, their customer service is abysmal and they have pretty restrictive trading hours. They also don’t let you do a stop loss AND a profit take price at the same time because reasons. Just a pretty lazy company overall, coasting on its market share.
I have a metric ton of Webull referrals but I actually think it’s a superior product too. Give it a shot if you haven’t already.
I think i see your point. I have short term goals (maybe a week to a 2-3 months) with a desire to only put $5-8K at a time on 1-3 stocks. If I see a $40-80 gain then I would sell to realize the gain. Having the stop loss limit orders would greatly reduce my need to constantly monitor. In the last three months I have found that I can stomach the possibility of a losing 8-10% in blue chips within a few days due to bad ER for example, but the upside of gaining 5-8% is really appealing than holding that cash in High Yield savings account.
it all depends on your preference and how much of a difference 6.95 (i think that is their charge) commission w TD makes compared to 0 with the other. TD is a "better" platform, but it depends if you are buying a lot of shares or tiny amounts. if you are buying small amounts then robinhood makes more sense as it is free. note that i am only talking about stock trading and NOT options as robinhood has had problems w options in the past.
Buyer beware. I owned Enron stock. Yes, you CAN end up with nothing.
only enron stock? if so that is exactly why one never puts 100% into any one investment as you never know what can happen. sry if that is the case
But your memories and stories are priceless.
The real financial gains are the friends we made along the way.
No insurance no care
I don’t understand why we differentiate checking vs savings. 3% is well below the 4% you can get on Orion and still lower than 3.33% from Heritage. Both have high enough limits that it only takes a few accounts for $100k+. This Robinhood “thing” is just noise.
And yes, you need to do some debit card transactions for the other accounts but that’s like 5 minutes of effort for an extra 1% of return
Those are rewards accounts, some people don't like to bother with those.
What do you suggest doing that could net me 10 transactions in 5 minutes? Anyways to automate that? I dislike that I need to set my direct deposit for those banks but for 4% interest I'm willing to swtich. I'm mostly excited because I use robinhood to gamble my money - this will leave me a good place to park idle cash when I can't find good deals.
Amazon credit loads in small increments? I think that might work
There’s an article on this site about how to meet debit requirements quickly.
Many fun-tech products like Sofi Money and Aspiration basically have the same infrastructre in place. An investment account that is swept into FDIC banks for overnight lending. No reason to think Robinhood can’t do it.
The fed rate is basically the same as it was when they announced and subsequently aborted. I don’t see why it would be lower than 2.50% even with changes to the market. Still going to be a great product.
Robinhood’s grave mistake was to call it a “checking” account In the first place.
Overnight lending does not pay 2.5%
They made much bigger mistakes than that