Robinhood Launches No-Fee 3% Checking and Savings Accounts

[Sam (Sam Solomon)]

Robinhood 3% Checking and Savings Account

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As the topic title says Robinhood is now offering no-fee 3% checking and savings accounts. That’s an impressive improvement over the highly recommended Ally savings accounts and a magnitude better than Wells Fargo or other major bank accounts.

I assume that they are not making money on this. It has to be a loss-leader to get people using their product for investments. In either case, I’m considering moving my funds over.

Disclaimer: If you signup from the link above, I move up the the line to test this out.

[Sam (Sam Solomon)]

As a side note—I absolutely love the look of the Robinhood debit cards. I know that shouldn’t be a deciding factor, but there’s a lot to love about a good looking card.

I like the white and black ones in-particular. The translucent half is a nice touch that I haven’t seen before.

[Sam (Sam Solomon)]

I was curious what other communities were saying. Here are other links that might provide some insight.

• Hacker News - Robinhood launches 3% checking account
• Bogleheads - Robinhood to launch 3% Checking & Savings Accounts
• Techcrunch - Robinhood launches no-fee checking/savings with Mastercard & the most ATMs
• r/financialindependence - Robinhood, the start-up upending stock trading, goes after banks with a 3% savings account
• r/personalfinance - Robinhood will begin offering checking and savings
• Product Hunt - Robinhood Checking & Savings

[loklav (Internet Guy)]

So going through those threads—basically everyone wants to know what the catch is. Checking and Savings account rates at 3% is a whole percentage higher than even Ally will offer. At 3 % you’re beating inflation and then some.

Some thoughts on “the catch.”

SIPC insured, not FDIC insured

Federal Deposit Insurance Corporation is an independent agency insures depositors. If a bank has your money and fails. the FDIC insures you get up $250,000 of that money.

The SIPC on the other hand is a non-profit member corporation created by the Securities Investor Protection Act. It insures each customer up to $500,000 for securities and cash with a $250,000 limit for cash.

This means that Robinhood can put some of that money in treasuries and get a larger return. However, if Robinhood goes out of business, you are insured for the cost of the assets, not the money you’ve put in.

VC-fueld growth

Robinhood may be gearing up for an IPO and want to show a strong user base. Checking and savings accounts don’t really make banks money—they get customers in the door to their other banking and investment products.

Robinhood is probably banking that this is a short-term holding account and many will be tempted to spend it purchasing stocks.

Credit card fees

That snazzy looking card you posted may have some of the answers. It looks like Robinhood has teamed up with MasterCard. Whenever a customer uses that debit card, the merchant will be charged a small fee. Perhaps, Robinhood thinks that this fee will help cover the expenses?

TBH, I’m more curious what this does to other players in the space. Wonder if Ally will respond?

[Sam (Sam Solomon)]

Good response. I don’t know if any of those things are inherently a problem—although the SPIC vs FDIC distinction is important.

Interest rates have been steadily going up all year. Barring any catastrophe, I think we’ll see at least another 1 percent increase next year. Robinhood could be banking on this loosing money for a few months until interest rates catch up.

I’m not sure I would put much money in this account initially, but I am curious what competitors will do.

[guystein]

@loklav

SIPC insured, not FDIC insured

According to CNN, it looks like the SIPC may not be interested in insuring these accounts.

Why? Because these aren’t really checking or savings accounts. These are investments in treasuries being marketed as savings accounts. See Matt Levine’s column in Bloomberg today.

But in the broadest possible sense, anyone could issue bank-account-like things without actually running a bank. Like I could just take your money, and promise to give it back to you whenever you want, and pay you 3 percent interest, and invest your money in Treasury bills or corporate bonds or Bitcoins or lottery tickets or an operating business or anything else that I wanted to. If the stuff I bought paid more than 3 percent, I’d keep the excess; if it lost value, then I wouldn’t have enough money to pay you back and we’d both feel pretty bad about it. If I called this thing “Matt Bank Accounts” I might get in trouble for, in essence, impersonating a bank, but if I called it “Matt Short-Term Funding Fun Party” I might be fine. “Matt Checking & Savings,” maybe? But banks are heavily regulated, and have capital requirements, because this business model is inherently risky…

[Sam (Sam Solomon)]

I just went to check my spot in line and got a 404 error. They’ve taken the waitlist and signup down.

https://www.sfchronicle.com/business/networth/article/Robinhood-under-fire-for-plans-to-offer-checking-13467776.php

It looks like the SIPC wasn’t happy with Robinhood calling their money market account Checking and Savings Accounts.

I am still considering moving my savings to Ally or another high-yield savings account. The interest major banks pay on savings funds is outrageous. Savings really should be able to keep pace with inflation.

[loklav (Internet Guy)]

Yeah, the whole thing is a little fishy. Whatever these accounts were, it seems like the Checking and Savings part of them was mostly marketing.