Investment App Robinhood is Now Offering a 3% No-Fee Savings Account

Cornelia Mascio
Dicembre 15, 2018

Some Robinhood customers attempting to access options trading on Wednesday morning received a message saying their account was deactivated and directing them to the company's support email address without a more detailed explanation.

News of Robinhood's incursion into the banking business arrives on the same day that European trading and money transfer firm Revolut announced that it had secured a banking licence in Lithuania, enabling it to passport a new suite iof banking services across the Union. Though it will now break into the larger financial services market with a model that holds the potential to put pressure on Wells Fargo, Chase, and Bank Of America.

Robinhood Checking and Savings plans to entice customers with a 3% annual yield, 30 times the average interest of accounts. It will also earn money through interchange fees when customers use debit cards.

The company's free stock-trading model now claims six million users and a $5.6 billion valuation in its five-year existence.

Co-CEO Baiju Bhatt said Thursday that the 3-percent rate is not a teaser, and the company believes it is sustainable given the economic environment. However, with banks hammering users with surprise fees and mediocre user experience, there's room for opportunity with a mobile-first startup to disrupt how we store money.

However, controversy is swirling around Robinhood's Checking & Savings product, offered through its broker-dealer unit. "Mental math is hard so if you look at the median United States household that has about $8000 in liquid savings, they'd earn $240 a year".

Robinhood's new service will be available as an added feature for the startup's roughly six million customers. Users will even get to customize a Robinhood-branded debit card that's accepted wherever Mastercard is. Users won't be able to identify whether an ATM is in the network by simply looking at it, but the Robinhood app features a map for finding the nearest one.

The firm said that up to $250,000 in the accounts would be insured by the Securities Investor Protection Corp (SIPC), an industry nonprofit created by Congress to help recover customer assets when brokerages go under. It's ordinary folks paying.

But beyond the assumed returns on the product, a Robinhood spokesman pointed out that the company is also making another bet: that checking and savings-type services will generate good will from customers, particularly if the economy takes a turn. "It's people that actually have less money", Bhatt says.

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