Robinhood launches 3% checking account
techcrunch.com
techcrunch.com
Checking accounts are loss leaders virtually everywhere, the exception being smaller community banks. Their primary revenue stream was, once upon a time, net interest income, but these days due to the extremely low interest environment and alternate sources of funding the revenue stream is more weighted towards fees (primarily NSFs, although that was hit a few years ago) and debit card interchange.
Robinhood also likely expects to not become the park-your-money account of choice for older dentists but rather to become the spend-your-money account for their millennial userbase. With high velocity of money and low balances the interest expense is minimal and, to the extent they use debit cards, the interchange revenue can be material. (In a stylized example where someone makes $2k a month and spends $200 on debit card purchases and $1.8k on rent/etc the interest cost for the year is ~$30 and the debit card interchange for the year is ~$60, even ignoring potential interest revenue.)
This is roughly in the same line as their core strategy, which is spending what would otherwise be a marketing budget on keeping commissions at zero, making money on the other ways brokerages make money. If you do not understand how a brokerage makes money, I encourage you to peruse the annual reports of e.g. eTrade or TD Ameritrade, which will happily explain their revenue sources and why commissions are a surprisingly small portion.
Metacomment: geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"
Furthermore, many boutique investment business exist for purposes of client services and plausible deniability on part of the client’s board.
I’ll give you a concrete example from when I worked in an asset management company. One client was a large pension fund for a state’s retired firefighters.
We showed them time and again a variety of enhancements to the basic portfolio construction product they bought from us, particularly in line with their overall goal of balancing investment in certain sectors across different asset managers to reduce risk.
They were not interested, not even on the basis of paying reduced fees for a simpler process. We also talked to them at length about why using a concentrated benchmark for that product (SP500) was a bad idea. Again, not interested.
After some months where our performance was pretty flat in that portfolio against SP500, pretty much as we told them we predicted it would be, they fired us.
In the client exit interview with two members of their board, they basically told us that each year they have to fire a certain number of the asset managers they do business with, in order to appear proactive and justify getting bonuses for taking action.
They obviously didn’t say this directly, but it was clear enough. They ended the call by saying they would be super excited to review re-investing with us later the next year, presumably at which time they have to do musical chairs with which asset managers they hired & fired to look proactive again.
Internally, some of my older mentors on the portfolio management team badically said this was the business. Nobody cares what math you use for investing at all. Everybody just uses super stupid linear regression based on outdated factor models from 40 years ago, all using the same data from the same big data vendors.
As long as you have hilariously over-credentialed PhDs selling linear regressions based on momentum or price-to-earnings, the clients are happy because you are cover-their-ass hire & fire insurance to them, nothing more.
It would not be hard at all for skilled amateurs to outperform these shops.
Of course they're greedy, but sometimes it's easier and more "natural" to make more money by rising fees, as opposed to deeply changing a modus operandi.
Big Finance knew it was hustling rubes, and then was able to ride the Gub'mnt Gravy Train when it became unsustainable.
In brief, models were constructed of the complex behaviors of packages of loans - CDOs. These models, trained under benign market conditions, did not account adequately for correlations that might make all their component loans default at once.
You can elaborate the story with a lot of context and granular detail, but the core of the crisis did have a strong element of "bad mathematics" -- bad mathematical modeling.
For more, see: https://www.maths.ox.ac.uk/system/files/attachments/1000332....
and references therein.
The paper concludes that while there were deficiencies with the modelling method (as there are with any model), input manipulation was at greater fault than inherent failures of the model itself.
"These results support the arguments of Donnelly & Embrechts[4] and Mackenzie & Spears[12], that Li and the Gaussian copula were not to blame for the Crisis...Instead it appears that the gaming of the model beyond its original assumptions, the outsourcing of CDO risk management to credit rating agencies, and the failure to perform holistic risk assessment seem far more to blame."
"The simulation results in this paper show that it is more important to focus on parameter estimation than copula choice. This leads to the observation that when it comes to mathematical financial modelling: in order to avoid a disaster, the cooking is more important than the recipe."
My point is that mathematical models were indeed being used and followed in this case, and that the issue really was with overextension of the model, and not just generic volatility of any market, as claimed by the GP comment.
>poor mathematical modeling of the statistical properties of collateralized debt obligations (CDOs) was the underlying cause of the bottom falling out of that market.
The model is hardly to blame when falsified inputs yield poor results.
I'm not "blaming the model" - probably everyone recognizes that all models have limits.
I call your attention again to the point of my original comment - the GGP comment was claiming that the best mathematicians in the world could not have foreseen the kind of conditions that caused the 2008 market failure. I'm arguing that it was possible, and that it was clear (mostly in retrospect) that the model assumptions were being violated most promiscuously.
In fact, the real reason I chimed in is that I think this crisis was a really awesome example of the power that quite abstract mathematical constructs have over our lives. I felt that point was missed in the generic comment about "who could have known" that kicked this thread off, and I sort of wanted to rescue that underlying mathematical issue.
If Robinhood allows users to simply park their money, they could be in for a world of hurt.
"Making money others ways" aka stripping their clients of financial privacy by selling their clients' investment-decision data: "Robinhood Is Making Millions Selling Out Their Millennial Customers To High-Frequency Traders"[1] If your investment brokerage firm's strategy is to use you as a sucker, no marginal gain in interest rate is worth it.
[1]https://seekingalpha.com/article/4205379-robinhood-making-mi...
no. most orders are not executed on the public exchanges, but by internal matching via your broker and a market maker. (also most exchanges only support trades in multiples of 100 shares.)
I believe all customer trades/executions on actual securities should eventually be publicly visible, though there may be a small delay for them to "print to the tape".
There are valid criticisms of payment for order flow but privacy isn't one of them.
Matt Levine does great write ups on this stuff, would highly recommend: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...
But who's that "someone else"? It's not the robinhood customer, because they're getting at least the best price on NMS[1]. So what's the issue? Would you rather pay $10/trade so your trade gets posted directly to the exchange and the profit goes to some random investment bank or daytrader rather than the HFT firm?
[1] https://en.wikipedia.org/wiki/Payment_for_order_flow#Legalit...
Investing in the stock market is literally investing in the collective appreciation of the value of the companies that make up it.
Currencies feed into the stock market, but it's not a closed system. If you think a company is undervalued in the stock market, and you buy shares, that raises the price of shares for that company. With a higher share price, that company can borrow money (by issuing shares) at better terms, and spend that money on growing more than they could have if they had not borrowed that money.
If the stock price is too low, the company may buy back shares of its own stock (thus enabling future borrowing). Alternatively, investors may buy up a majority of the stock of that company, thus acquiring control of that company, and either try to force the company to do a thing they expect to be profitable, or liquidate the assets of the company (which will then be distributed to shareholders in proportion to how many shares they hold).
So basically the stock market moves money to the companies based on how effectively they could spend borrowed money / how valuable they would be if liquidated.
This is why fiat currencies are so useful: you can change the length of the "ruler" to accommodate changes in the thing you're measuring, so the value of the increment remains stable.
Normally the investor would get the stock since they placed their order first. But since the HFT firm is paying for the order they get it instead. If things go well the HFT firm can sell to the investor at x+b, if things go poorly they cut their losses and sell at x.
The investor that didn't get the order and has to buy it from the HFT firm at x+b is the loser.
The money that funds this dance comes from the millennial who sold a stock worth x+c at x, but that would have happened regardless.
>They want to buy stock for $99.99 and sell it at $100.01 and clip two cents on each trade. If their orders are random—if sometimes people buy and sometimes they sell, with no pattern—then that works out well for the market makers. But their big risk is what they call “adverse selection”: Sometimes, when a customer buys 100 shares at $100.01, it then buys another 100 shares at $100.02, and another 100 shares at $100.03, and keeps going until it has bought 10,000 shares and pushed the price up dramatically. The market maker who sold it the first 100 shares—and who is probably now short and needs to go out and buy those shares at a higher price—has been run over.
>[...] [I]f a market maker can guarantee that it will only interact with retail customers—if it can filter out big orders from institutional investors—then its risk of adverse selection goes way down. The way the market maker does this is by paying retail brokers to send it their order flow, and promising those brokers that it will execute their orders better* than the public markets would. [...] It can offer a tighter spread than the public markets—and have money left over to pay the retail brokers—because it doesn’t have to worry about adverse selection. If the retail broker is, say, one designed to let young people day-trade for free on their phones, then those orders are probably particularly valuable, because they are probably particularly random.*
[0] https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...
The reality is that market makers price non-retail flow more conservatively (ie: costing traders more) because they have to anticipate informed large block trades wiping them out. Since they don't have to do that for retail flow, their cost basis for those trades is lower, and they can (and do) split the proceeds of that reduced cost with brokerages.
It's overwhelmingly likely that any other brokerage you use does the same thing, and simply doesn't tell you or pass any of those savings on to you.
1. I don't know why the title mentions "millenial" customers in particular, because every brokerage does this across all demographics,
2. This activity is not "selling out" customers. If you believe that customers are "suckers" because their order flow is sold to high frequency traders, you have a very fundamental misconception about high frequency trading and its role in market making,
3. There is no codified definition of, or law protecting, "financial privacy" in the sense of order flow. This data isn't connected to you as an individual, just as you can't see which individuals or companies are placing bids and asks in the order book just because you can see the amounts and prices. All trades in the market are publicly reported regardless of whether or not your order flow is sold.
It never ceases to amaze me how the term "high frequency trading" can compel people to pontificate about things they clearly don't understand. You'd think we'd have collectively moved on from the Flash Boys misconceptions by now. Yet here we are, with an article talking about high frequency traders as some kind of financial boogeyman in 2018.
Cant see this lasting long
This means if there's a downturn in the market, they won't go bankrupt due to all the outstanding margin accounts (or have to do margin calls).
https://www.americanexpress.com/personalsavings/high-yield-s...
Moviepass was also bought by a financial firm... Come to think of it, they have many similarities. Both companies are basically handing out free money and it's unclear how they would make any profit. People speculate that both companies would make money by "selling data." Unless if Robinhood is doing something very illegal, there is no way that they could make enough money that way.
That said, I do think that Robinhood knows what they're doing. They're getting a lot of publicity right now. In the worst case scenario, Robinhood can cut costs by slashing interest rates and putting a cap on the number of free trades you can do. Their worth would plummet, but later investors would be the ones who pay that price. Overall, Robinhood would still be better off.
https://seekingalpha.com/article/4205379-robinhood-making-mi...
† You could argue either way about whether IB gets paid to "internalize" orders or whether the order flow rebates they get are something else.
If they had been able to work out a profit share off concessions and cheaper tickets with AMC/Cinemark/Regal/etc they might be in a different setting right now.
[1] https://www.investopedia.com/terms/p/paymentoforderflow.asp
I agree that the high rate is reasonable in that scenario, but the high rate is also actively fighting to ensure that scenario doesn’t happen.
I don’t see people here thinking that Robinhood is bad at math. They’re all asking, “what’s the catch?” Because it sure seems like there must be one.
Or maybe they're going to be able to sell people's transaction histories...
You are assuming that customers make this decision rationally; marketing very often leverages the fact that humans very often don't do that.
From the Robinhood website fine print “Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account.”
So, yes, opening a Robinhood Checking & Savings account does mean that they will open a trading account, because they aren't actually different accounts. (And it's a waitlisted feature where you get moved up the waitlisted by referring others to RobinHood, so it's a clear way of getting the overall service in front of more users.)
Yeah but people do grow up. And I don't know about you, but I've got some super long term relationships with some banks. They are in it for the long game.
(I mean it would be great if there were a bank that did all its customer service over text chat, but that's too much to ask for, right?)
And I’d really wish they’d just stop
The branches have only been to my benefit, never really required, just faster.
I think Simple was supposed to be that. I wonder how they'll respond to this, given that they only recently moved to 2% ($2k minimum).
Which should tell you a lot. I've been through the "Millennial Bank" wringer.
Honestly, checking accounts are all the same. Especially because I use a credit card paid in full every month. It's a holding pool till next month's CC bill is due. Until the US treats debit cards with the same protections as credit, I won't let my debit card near a gas pump or wander off with a waiter or be used online.
I don't know that there's an opening really. That so-called opening keeps popping up since like 2005 and gets "filled" by a SV-backed MVNO-For-Banking and it's just........a checking account provided by some.other actual bank repackaged with a (nice) angular front end and on the AllPoint ATM network with crappy chat customer support.
Or you bank at Wells Fargo or some other institution whose corrupt practices spill out into public.
3% guaranteed earnings is a very good deal without any downside, while the risks involved with trading that money are substantial.
Also, presumably lots of people would rather put their beautiful minds towards things other than being anxious about how their savings are going. There is a lot to be said for just being able to park your money somewhere and not have to worry about it while you go live your life.
So Robinhood wants users to have their cash on hand ready to jump into the market. Will be too tempting to many.
With the current 2 year treasury being 2.76%, they must making money on fees. I am seriously considering moving my savings from a Capital One money market account that earns 2% to this that earns 3%. That extra percent is decently significant.
They have no customer service and a decently easy collection of horror stories related to their lack of customer service.
What I don't understand is those people who willingly park their money in CDs at under 1% and the banks proudly advertising these rates.
This era of seemingly permanent low(or even negative) rates just somehow seem unnatural.
What happened to banker's 6-3-3 rule? "Lend at 6%, borrow at 3% and go golfing at 3:00PM"
The Bretton Woods agreement ended.
It's not too crazy, rates have gone up a ton without most bank accounts adjusting from being near 0%. The 10-year is currently just under 3% with the whole curve being really flat and lots of online banks offer over 2%. I currently get 2.05% with my Marcus account and Goldman Sachs isn't exactly known for giving things away (and with 3 month t-bills paying 2.41% they certainly aren't giving anything away!).
I remember the days when Citibank would give out 4% interest about a decade ago. now of course, it's about 0%. It's just classic bait and switch.
Iceland's government/deposit insurance did not pull through.
Cyprus wasn't much different either.
https://www.telegraph.co.uk/finance/financialcrisis/11877219...
https://www.telegraph.co.uk/finance/financialcrisis/9965943/...
This are cash balances, not money market funds or any other funds.
Robinhood's checking page says "Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account."
Account has 3 parts:
1. Marketable securities -- value is NOT insured.
2. Cash on hand -- value IS ensured.
3. Money market fund -- value is NOT insured.
(3) may or may not be offered and if (3) is offered it has to be elected by the account holder. Money cannot flow from (1) to (3) or from (3) to (1) bypassing (2) due to securities regulations -- one cannot pay for one security with another security, a settled cash must be used.
If the APY is on (2) they will get killed by the fatwallet/slickdeals crowd. If the APY is on (3) it is more complicated but debit/check transactions against (3) are very expensive to clear so I don't quite see what the play is.
He later stated that the SEC would need to take the lead on clarifying the matter though.
I have a one-year emergency fund with Robinhood that is invested in index funds (secondary emergency fund as the primary emergency fund is in cash). I think I'll keep my primary emergency fund in the PNC high yield savings account for now until all that gets worked out.
That's not a bait in switch, interest rates plummeted globally to the point a lot of people were happy to even get 0%!
Are you unaware that interest rates today are drastically different than a decade ago?
A decade ago, the rate was 1.00%. (And three days later, it was 0.00-0.25%.)
The product is already being renamed as a "money management fund"
Think of it like being a health insurance salesman who puts your office at the top of a long flights of stairs. You can have a lower risk pool because the only clients who come to see you are the ones who can climb a bunch of stairs to get there.
In other words, they advertise to a user-base that doesn't have much in the way of savings so they're avoiding people who would keep high balances anyway.
Besides, most people who do have large balances tend to park them in money market funds anyway. They can usually hit between 2% to 3% annually and offer more flexibility in terms of being able to access the money without transferring balances around. Alternatively they'll be putting it in tax-deferred accounts.
If you have enough money coming in that you can accrue a lot of savings, a savings account isn't the most productive place to put it. It should be regarded as more of a rainy day fund or a place to park money that you're saving up for something specific, like a down payment.
1. I don't care about physical branches, I've been using online banking from the beginning. 2. I am at a stage in my life where I am slowly paying back all my debts and making just enough to set some cash aside every paycheck.
I don't have enough money to go looking at financial instruments such as money market funds or CD's, because they tend to lock my money up for a certain period of time.
I still need to be liquid. Some place where I can make 3% and have it just sit is fine for me, and allows me to access it in case of an emergency without paying fines or penalties for doing so, and with less hassle than some other financial instruments where it is locked up.
Once I have a buffer built up, and I feel comfortable with that buffer, maybe then I'll start looking at other places to potentially let my money make more money faster with a little higher risk and with less liquidity.
Usually you want to build a tractor (recurring deposits to a reference rate) at the 7 or 10 year treasury, to ensure that you have a stable supply of available deposits, and a short term rate too to handle "hot money".
You make money on the spread.
I really don't see how they are funding their interest rate.
Source: I still have some money in a ~0% online savings account that I opened because it was 5% at the time.
My rough calculation based on the data here[0] suggests it would be at least 60% lower than that:
$200 x 12 months = $2400 txn value $2400 / $35 = 69 transactions 69 * $0.35 = $24 interchange fees
What am I missing?
[0] https://www.federalreserve.gov/paymentsystems/regii-average-...
Similar to YouInvest and Chase.
No. But you don't have to be bad at maths to play exploitably.
Many years ago now I was a hand-to-mouth graduate student. New credit card companies wanted to attract customers so they offered an easy approval card with 0% finance for 18 months. Need to use some of your new credit on existing debts? Rather than figure out all the specifics they just included a cheque book with the product, just write a cheque to pay any debts and it goes on your 0% balance.
Everybody I knew took out a card, write the full credit amount on a cheque, paid it into a fixed term savings account.
Account term ends, you pay off the 0% card, keep the interest, cut the card in half and you're done. Free money.
The people who ran those new card companies knew this might happen, they just didn't guess it would happen often enough to ruin them. Not our problem. A few years later the deals on offer explicitly did not have a way to cash out. Lesson learned.
There are still banks who are trying to do this. You can rephrase it as, "lending money to winners." Even better if you can lend money to an underdog winner, enabling them to borrow even more in the future. Community banks are now left with only the underdog borrowers, as the low hanging fruit is swept up easily by the megacorporation banks.
Metacomment: geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"
This is the POV of my wife, who manages underwriting: Community banks are having problems hiring the "A-Students" and "B-Students." This means that employees either make more mistakes, or need more rigorous support through custom software, which community banks can ill afford, and where the big megacorporation banks can handily outcompete them.
Metacomment: geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"
The incorrect ratings were intentional and designed to look like they were correct so that no one would find out. It's easier to make sure no one finds out the number is wrong if you know what the correct number is and how to tweak factors here and there to influence it.
Were you trying to sneak in a comment about an impending explosion? :)
That's why it keeps happening. They get rich and get away with it every time.
reminds me of the first time i interviewed at google, and one of the interviewers asked "if you could set up your own project and get a team to work on it, what would you do?". i answered that i would get a bunch of maths phds together and have them work out graph-theoretic ways of detecting link farms (this was 2004, and i had actually been wondering for a while why google hadn't done exactly that).
the interviewer (who was a pretty senior person) asked "why do you think the spammers don't have their own phd mathematicians to defeat such measures?". i was only a few years out of grad school at the time, and it was honestly the first time i thought about the fact that people who were both smart and educated might nonetheless go into a shady and declasse activity like running spam sites. i consider it a valuable lesson to this day.
The crooks I've met have been the smartest and most insightful people I've met in tech. I know one guy who, after years with a CC scam operations when to work for an online merchant. His knowledge of payment systems and payment processor policies was encyclopedic. The big issue was whether he was trustworthy. Lucky he had never been convicted of anything.
The financial firm, bookmaker and casino just needs to outmath the 99.9% of customers who are not trying to beat them to win, and evict the 0.01% of customers whose outmathing is so good it is causing them problems.
99.9% of customers who are not trying to beat them to win
0.01% of customers whose outmathing is so good it is causing them problems.
The rest are customers who are outmathing them, but not enough to cause them problems. And by problems I mean problems worth spending their time on.
I never would have thought about the shady side had you not told this story. Makes me start to wonder what else I’m missing...
Thus, your response should have been: link farms with their own phds is only more reason to instantiate your plan
Go on a blackhat SEO forum. Look at the number of sellers, the number of listings, the number of positive feedback and the cost of some packages (you can easily go on and spend 50$ or a 1000$+ for a single package). There's a LOT of money in blackhat SEO. That's just the people offering to do it for you.
Then look at the dozens of software packages for sell that are constantly being updated and have both one-time fees and ongoing subscription pricing.
Then go look at the people selling just various social media accounts which mass-creation of gets harder and harder.
Then there's people that sell VPS access. They'll buy the software tools and host them all on a VPS and rent to you weekly or monthly so you can shell out tens of dollars or hundreds of dollars a month instead of needing to cough up thousands just to get all of the software for the month.
And that's just what's readily available with paypal or a credit card on the clearnet.
Why/how is Robinhood now showing how far along I am compared to my friends on the waitlist? I dont believe I ever enabled any social sharing, and Robinhood's access to my contacts is shut off.
I do not feel comfortable sharing (and especially not broadcasting!) my financial decisions with people I am connected to on social media. This is pretty upsetting to me.
2 - just because you didn't share doesn't mean your friends didn't
I could be mistaken but business models built on interchange (I think) have been the downfall of a number of 'neo-banks' from the last 5-10 years. More recently I've seen people adopting a commercial-classified card (or other) for these types of plays for the sole reason of it attracting a higher rate of interchange vs a typical consumer debit card.
Asking around, I consistently heard that Monzo's competitors like Revolut are going to be a future case study in scaling before great product/market fit. I don't know how many people have Revolut accounts, but nobody seems to be using their cards in public.
Little details really add up. For instance, Revolut didn't have contactless support for a while, which meant people could not use it on the Tube. Monzo made their cards pink, which creates a physical network effect.
The US seems to have a wave of startups trying to reinvent checking accounts right now. I wonder which, if any, will take the market:
- Varo (https://varomoney.com) - Product and brand don't look very polished and they haven't launched Android support, but they are doing the "hard thing" of getting a bank charter (rather than having a partner bank, like all of the others).
- Robinhood (https://robinhood.com) - Already offers investment products, so they can get a lot of users quickly. Unclear how good the product will be. (For example - can they support contactless payments with a clear card?)
- Chime (https://chimebank.com) - Seems to have the most mature and polished product. The killer feature they advertise is "get direct deposits faster", which doesn't seem world-changing to me.
My benchmark is Charles Schwab Bank, which offers no fees on any ATM, anywhere. It's what many millennials that I know use. But, it's a bad product and not very user-friendly. Simple tried to reinvent banking, but they never seemed to go beyond polishing the UI. I'm curious to see what the future holds, particularly as some foreign banks expand to the USA!
Simple closed my account with no notice or recourse, because they failed to notify me that I needed to update some information.
I honestly can't believe I trusted my money to people so incompetent at even the basics of business.
Why do you say it's a bad product? I use Schwab as my main account and it works great for me.
The opportunity here for a startup bank is to replace credit card spending in the USA. The potential earnings are huge if you can get consumers to spend on a debit card instead of a credit card (because the rake is higher).
To make a checking account capture the spending market in the USA, it needs to feel premium and focused - like the Amex app. The spending analysis needs to be great, the card needs easy control in the mobile app, and it needs to inspire confidence. It also needs to feel like a trusted, approachable brand.
Schwab makes most of their money on investments. I don't foresee them trying to give mass-market appeal to their checking account, separate from the investment account.
A case study in this field is Marcus, a savings app from Goldman Sachs. If Schwab spun out their checking account into a separate sub-brand with branding that appeals to millennials and had a spending-focused mobile app, I could see them doing really well: https://www.marcus.com/us/en/savings
I think the converse is true. Card issuers earn 1 percent points higher interchange rates on credit cards (2.60%) than debit cards (1.60%).
Isn't that the wrong perspective on a financial product? I agree that good design is important, to a degree. Once a certain level is hit, you're not going to gain/lose very many customers based upon the UI.
I don't think anyone should favor one bank over another for emotional reasons Also, I'm not sure design differences qualifies as "emotional"; I think a better word would be "design" or "aesthetic".
If Bank A offers you a 4% interest rate on a loan and Bank B offers you a 4.1% interest rate on a loan, I think most people would pick Bank A over Bank B (assuming fee structures and customer service is more or less equal). Even if Bank B has a beautiful UI as opposed to Bank A's equally functional but okay looking UI.
If only those were the options. I'm considering dropping one of my banks after their mobile-first aesthetic redesign that made their website drastically less functional. (Less information density, more clicks to accomplish anything, extreme non-obviousness of how to access various features.) It's been a year or two, and functionality remains significantly degraded compared to their old website.
Being able to make a large purchase on debit means you can afford it right now-- just as dropping a stack of $100 notes would signal.
In contrast, paying with credit can be a pose-- you look like you can afford the $1000 purchase, but it hides the dark secret that you'll be paying for it well into the next decade.
My direct deposits go there, but I moved all my investments over to Interactive Brokers since Schwab doesn't offer (to my knowledge) portfolio margin and Schwab's margin rates are usurious.
For me the killer is no foreign transaction fees. If Robinhood allows world wide ATM + no foreign transaction fees I'd switch in a heartbeat. I dont use Schwab for equities, I use Robinhood & Wealthfront
I had simple for a while and the UI was great, app is best of the ones I've seen but they never had anything else (they recently created a savings account) and no checks got annoying to deal with.
My Bank of the future would have these features:
- Full brokerage account with available trading and zero fee index funds
- Free checks
- Free wiring/ability to send money to other people's bank accounts
- Really good app (like simple's)
- Decent interest like Robinhood has here without having to separate things into a savings account
- No fees
- Credit card to rival Chase Sapphire Reserve or AMEX Platinum with tightly coupled integration into the existing app software.
- All ATMs are free (rarely use, but nice to have and Fidelity does it).
- Ability to get loans
Fidelity has nearly all of these things with some negatives:
- App is not that great/UI is bad
- Their credit card is bad and not well integrated into their software
- Interest is poor
Haven is a new startup that's has a pretty cool approach to helping people do the optimal thing with their money (like an automated r/personalfinance), but I'd rather just be able to do it directly with the people holding the money.
Square's Cash App + Cash Card is taking the lead here, IMO. Card, direct deposit, ATM usage, p2p payments, rewards program.
They've been the #1 app in finance all year on the Apple store, and were #1 in all free apps for a little while this past week. They are massively popular in the south, but the rest of the country may catch up, but I sort of wonder if silicon valley is gonna miss the rise since its out of sight for the time being. For growth and reach see for example:
Graph over time: https://trends.google.com/trends/explore?date=all&geo=US&q=c...
States where cash app dominates so far: https://trends.google.com/trends/explore?date=today%201-m&ge...
If Cash App introduced brokerage services it would be over for Robinhood.
When I talk to friends for p2p payments, people mostly use venmo, then messenger & apple pay and nobody uses square cash.
Monzo is a licensed bank in the UK, and Revolut is not.
Still, Revolut has about 30% more customers in the UK than Monzo, and about 3x more in total, since it's available in the entire EU. And, unlike Monzo, which is still losing money, Revolut has been profitable since February 2018.
That's because Revolut does much more than Monzo. It provides multiple premium account types, virtual credit cards for online payments, business accounts with open API access, credit, insurance, and soon – fee-free stock trading like Robinhood.
It's really a crap shoot if any specific retailer supports contactless, no major metro system that I know of support direct debit / credit contactless cards and no major bank or credit card company issues contactless cards.
If you want to use contactless in america, you add the card to apple / google / samsung pay and use your phone for NFC payments. I get a feeling that america will do a 'leapfrog' in contactless and go directly to smartphone only contactless cards than ever issue a contactless card in the mass market.
Why? (I think they're all run by the same company, HMSHost, who, AFAICT as a traveler, has a monopoly on airport food.)
In Canada we had none of that.
Citibank's Costco Visa card is contactless
I've already switched to Apple Pay anyway.
Chase is about to add it to all their cards.
They are a definite contender for your list.
I'd take another look at Simple. I've been with them since the beginning and their recent enhancements are fantastic! Expenses tied to your pay schedule that automatically set money aside, same with goals. and then the big one for me was an interest bearing savings account, yielding 2%.
See more here:
The math itself doesn't matter. Have you seen recent Robinhood commercials popping up on TV? Their whole business is to encourage folks that should not be day trading to day trade.
Having your money parked there just facilitates knee-jerk-reaction and follow-the-crowd trading.
Less cynically, it’s building a book of investors who have likely never lost money in the stock market.
Knowing that RH gambles your money, it gives them plenty of profit :)
http://www.finra.org/investors/day-trading-margin-requiremen...
The real story is that the plebes realized they could make 2% per day by day trading and selling short. I did this with my dad and we were up about $40k before 9/11 wiped out most people's gains (this was back when Apple stock was in the $12-20 range). Edit: my dad never sold short because he felt it was unsupportive of companies, but had he done it to balance each of the buy/sell targets I gave him, he would have been up $80k.
I remember being demoralized that I couldn't trade on margin because I would likely never be able to save $25k with my student loan and credit card debt. But if I read the rules correctly now, I don't even think you can sell short anymore unless you have $25k.
This keeps the real day trading profits back in the hands of the rich and I feel that it could/should be challenged as discrimination. Also it breaks the ZOI rule so doesn't sit right with me..
Can you please elaborate? I'm curious. Why was the money so "easy"? Simply because there were so many amateur traders?
Also we bought right after the dot bomb happened on 9/29/2000 when most all the tech stocks fell by half or more in one day, so there was a constant upward trend where people wanted to start gambling in stocks again over the next year:
https://money.cnn.com/2000/09/29/markets/techwrap/
You can see the drop here, I can't figure out how to share, but enter something like 9/28/2000 through 9/30/2000 in the date range:
https://finance.yahoo.com/quote/AAPL/chart?p=AAPL
You have to remember that these events aren't random. I personally feel that they're controlled by whoever holds the purse strings, so a handful of extremely wealthy illuminati were getting nervous towards the end of the dot com and housing bubbles and made the call to pull the plug so they could re-buy after everything crashed (see: It's a Wonderful Life).
We're overdue for that with the mobile and web 2.0 bubble. The main difference today is that older folks like me remember the lean times so more startups today have pulled themselves up by their bootstraps and are somewhat immune to these market manipulations vs propped-up brands like pets.com in the 90s. But don't think for a second that crashes (or booms) like these with a 50% move in one day can't happen again.
As long as I'm on my soapbox, I wish that I could dabble in a little machine learning and look for correlations that tend to swing together or oppositely one another. No matter how much the bots tend towards noise, there are still markets that are connected that should be easy to spot. I don't know what else I would try though because I stopped following the market after the housing bubble when people started trading foreign currency and Bitcoin etc. I could have bought $20,000 worth of bitcoin when it was $10 so it's all just monopoly money to me now. I feel that chasing easy money is maybe distracting us from real human progress. But what do I know, I'm just the poor sap stuck in the universe where I never made it big hahah.
The rules were put in place to protect people from being lured into day trading by day trading service companies. The thought was to prevent people from spending their rent money thinking they were going to get rich day trading. Also, trading with small amounts of money pushes people into penny stocks, which is an even faster way for someone to lose all their money.
BTW, since the money is so easy you could always have traded futures which are exempt from PDT. https://www.tradingsetupsreview.com/futures-trading-best-opt...
One of the charts in etrade said we were up $40k over about a 4 month period and my dad had about $50k in play, trading on margin so working with about $100k. So the real return was more like 80% over 4 months, so I guess 240% for a year although I don't know if I'm doing that math right.
My biggest fear most days was honestly that there wasn't going to be enough volatility for the stock to move, meaning we threw away $7 to $28 on trading fees. I was moving furniture at the time and only made $80 on a good day so that was a lot of money for me then.
The rules were approved in February 2001, so they can't have been a response to 9/11, kneejerk or not.
If you short high beta tech stocks on margin as you mentioned in your post, you'll get wiped out really fast. Go to Wallstreetbet subreddit and pull up the thread where a guy lost 1.5mm this year, he lost it shorting high beta tech stock that did a swing of 10% in the wrong direction forcing a margin call and a liquidation.
If you wanted to capture the downside of a stock, you can buy puts without a margin account. You should probably really understand the market better before you expose yourself to a larger risk than the money you put in.
Also using the ridiculously upside down moral convention that they are somehow 'the good guys defeating the system' i.e. 'Robin Hood'.
"We wanted to do something after occupy Wall Street, you know. Something real. So, how about, get all the young people to, you know, put their money into Wall Street" is basically their 'storyboard motivation'. Which the CNN interviewer accepted without a hint of skepticism.
If it was 1996, these people would be speculating on Beanie Baby portfolios hedged with Charizard cards.
I was locked out for 29 hours with expiring strangles that would have had significant upside if closed at the right time, lost everything put into them by the time I could get back in.
Never received communication about the lock out or being allowed back in.
They have no phone support and during that whole period not a single email was responded to.
To imagine this company as a bank is one of the most ridiculous concepts ive heard of.
There's one guy on there who lost nearly a million bucks. And another one who I believe has lost more than that, and hasn't posted a single thing in three months, since he finally made it all the way to bankrupt. Makes you think a little, I wonder if he's still alive.
I did learn that options are super exciting and a great way to lose every last penny. I got lucky and came out ever so slightly ahead on my run through WSB, but I got out of it and now I'm back to normal stocks even with my play money.
Also don’t touch or put more than 3% in options or crypto. 80% of traders lose money with options and crypto doesn’t usually generate interest or dividends. Also crypto taxes were absolute difficult nightmare for me last year.
Congratulations, you just reinvented the S&P 500.
Buying stocks isn't really investing, it's more akin to gambling like Poker, with all other investors at the table.
Many of those investors have massive computers, R&D firms, brilliant minds, 'inside information', and relationships with those companies and CEO's.
So what 'millenial' is going to trade better than those?
Zero. Or at least in the long run.
The only way to 'beat the man' is to have more knowledge than Wall St. and that is extremely rare.
So what 'Robin Hood' does is sign up fish to feed to sharks.
It might make sense to put a chunk of savings in a broad array of stocks (some in bonds, some in gold, some in cash etc.) - but 'trading' against Wall Street is about as smart as playing Poker against the best in the world thinking you're going to win.
Even on the institutional side, the business is setup to encourage investors to change their mind as much as possible. More trading equals more soft dollars equals getting a larger budget for research. More trading/using more esoteric products means you’ll get more help from Cap Intro to raise money. It takes a lot of restraint to invest like Buffett.
See also E-Trade's "Don't get mad, get E-Trade" commercials[0], which are clearly intended to give people the impression that stock trading will make them Super-Yacht rich.
[0] https://www.youtube.com/playlist?list=PLHVKU2qFM7q2HuTv5RCU0...
Trading for most people used to be deliberately obtuse. $7.5 commission per trade is criminal for most people, so is charging $50 a month to get a weekly email with basic technical analysis, but that's literally been the bread and butter of retail investing for decades and no one bats an eye to how deliberately ridiculous it all is.
Robinhood drops all the barriers from buying stocks, gives you a warning before they even let you touch options, and they are the evil here? This is like saying venmo is dumb because it lets people wipe out their checking account quicker than writing a check; don't blame the company for idiotic users. Robinhood doesn't even let you day trade more than 4x in a given week unless you have 25k in your trading account, just like every brokerage.
When Robinhood initiates options trading by asking you, "Do you think the stock is going to go up?" on a phone interface, they've decided that trading is now just for morons.
Naked, covered, and cash secured are terms used to describe how you are covering your downside when you are selling options.
When you buy an option, your downside is always the cash you spent on the option, so you don't have different types of purchases. When you buy you are just buying an option.
As for Robinhood, they don't allow for selling of naked options, only covered and cash secured.
Imagine on iOS you randomly gets a pop up "do you think gold spot is gonna be above 1250 in 2 hours?" -> long tap the notification directly place an order
Buying stock with dividends helps even more, now you get money back to invest into more stock :-D
Everything else is in index funds.
They find gaps in the financial institutions' way of doing business and fill the space.
And,
https://www.google.com/amp/s/www.bloomberg.com/amp/news/arti...
Edit: I forgot about the details of the limit. Thank you all.
It's actually per bank, per type of account. So $250k in savings accounts, $250k in checking, $250 in Money Market, etc.
> All single accounts owned by the same person at the same bank are added together and insured up to $250,000
Revocable trusts, joint accounts, and other types of accounts with multiple custodians are covered separately, but checking, savings, and so on are not.
It's not per type of account, it's per ownership category. Ownership categories are:
(1) Single accounts
(2) Certain self-directed retirement accounts
(3) Joint accounts
(4) Revocable trust accounts
(5) Irrevocable trust accounts
(6) Employee benefit (non-self-directed) plan accounts
(7) Corporation, partnership, or unicorporated association account
(8) Government accounts
https://www.fdic.gov/deposit/covered/categories.html
With a little bit of work, you can probably spread your money into a few of those categories without much problem and have more than $250k coverage, but it's not as easy as just having checking and savings.
To clarify, I am talking about customers who held money at LB invested in mutual funds or securities. If the account had a mix M of securities before LB collapsed they would have the same mix once the dust settled and LB account was forced to whatever other brokerage. If this is incorrect (not for some advanced hedge funds, etc. but for retail customers) I would love to know.
If you are talking about folks who held LB stock or bonds, they sure did lose money when the company went bankrupt, but that is not unexpected. Stocks fluctuate in price and some go all the way to zero; for every Google there are a few KMarts, Sears or Enrons.
https://www.kiplinger.com/article/investing/T023-C000-S001-w...
However, reading more I am not as sure that individual investors holding money in LB investing in other (non-LB) securities did not suffer. I am not an expert and cannot always distinguish between reputable sources and conspiracy theorists. Can someone provide some good references?
And if the gov't really wanted to weasel out of FDIC there are plenty of loopholes. For example, I think FDIC can take a long time (up to 10 years?) to pay and is not adjusted for inflation, so inflate, wait and pay pre-inflate amounts is an option (stupid, but technically possible).
> SIPC insurance provides protection for your cash balance and securities holdings if Robinhood fails financially, but does not cover investment losses due to declines in the value of securities themselves.
Emphasis mine.
If you put $250,000 into an FDIC-protected checking account, that account holds cash and FDIC protects the full amount of that cash.
If you put $250,000 in an SIPC-protected brokerage account, that account holds both cash and securities, and SIPC does not protect you from a decline in the market value of those securities. So imagine the stock market drops and you go to your "checking account" and that has dropped too! To me, the concept of such a "checking account" violates my basic assumptions of how I think about my cash holdings vs. my security holdings.
I don't know how that percentage of cash/securities breaks down at Robinhood, but it's not going to be 100% cash and 0% securities. There is a reason big banks don't offer checking accounts with 3% interest rates. When the return is higher, the risk must have gone up too, somehow.
It also seems like there could be weird tax implications if your "checking account" has to liquidate securities to cover a big check you wrote.
Because if it is, then this is basically the same. Your cash is fully insured, but obviously your investments run investment risk.
If Robinhood automatically converts your money into securities, then it's a different matter. It sounds unlikely to me that any bank account would work that way, but I don't know how Robinhood works.
I'd recommend reading up on the Federal Reserve (The Creature from Jekyll Island), the modern financial system (any of Michael Lewis's books, especially Boomerang and The Big Short), and maybe the first global banking families (The Medicis: Power, Money, and Ambition in the Italian Renaissance). We're talking about the power structure of the world here and it's good to be informed on the main points.
I still suspect that the securities mentioned are your own securities rather than the bank's, which makes it totally sensible that they're not covered by the insurance.
"Own nothing, but control everything." -John D. Rockefeller
edit: good note from /u/snowwrestler below:
> > It's not the cash/securities that Robinhood holds as part of their business, it's the one they hold for you. You may well choose to hold 100% cash or 100% securities.
> If I'm holding 100% securities, a) SIPC offers me no protection from losses, b) I better be making more than 3% return, and c) I would not call that situation "a checking account."
"I bought 100 shares of Acmecorp, then Robinhood shuttered their doors and said they sold the shares to fund their yacht."
The SIPC's job there is to reimburse you for 100 shares of Acmecorp as of now; they're not going to let investors cherry-pick and say "but they mishandled the account during the one day it was at its peak and I want that price!"
I don't understand what a "checking account" is that guarantees 3% interest and is covered by SIPC instead of FDIC.
Aside from that, it appears they're investing this money in short-term treasuries rather than stocks, making up the difference in merchant fees for debit card transactions, and maybe treating this as a loss leader. They've partnered with Sutton Bank since they don't have their own banking license.
https://www.forbes.com/sites/jeffkauflin/2018/12/13/in-a-bol...
There's SIPC protection for your cash and securities (stocks etc.) that Robinhood holds for you, up to 250,000$ each. For obvious reasons, the value of a security in dollars fluctuates and therefore such losses cannot be insured. What is being recovered is the securities themselves, not their dollar value at a time of your choosing.
> I don't know how that percentage of cash/securities breaks down at Robinhood, but it's not going to be 100% cash and 0% securities. There is a reason big banks don't offer checking accounts with 3% interest rates. When the return is higher, the risk must have gone up too, somehow.
It's not the cash/securities that Robinhood holds as part of their business, it's the one they hold for you. You may well choose to hold 100% cash or 100% securities.
Actual banks hold only a small fraction of cash deposits in reserve, many of their assets may just as well turn out to be made up of bad loans, bad junk bonds and bad stocks. That's how banks can fail even without a bank run.
If I'm holding 100% securities, a) SIPC offers me no protection from losses, b) I better be making more than 3% return, and c) I would not call that situation "a checking account."
A checking account holds 100% cash (dollars), not securities. That cash is insured by SIPC up to $250,000, just like the cash in your bank account is only insured up to $250,000.
Securities is things like stocks. Stocks are subject to significant gains, but also significant losses. That's the investment risk you have to take. There's no way around it. There can't be a government insurance against it. You can buy "insurance" against losses by purchasing options to sell at a specific price, or you can reduce risk by diversifying your portfolio.
I don't know the details of how securities are valued for recovery in the context of SIPC, but the point is that you will receive (parts of) your securities, not cash. Therefore, if for example you hold Microsoft stock at the time of bankruptcy of Robinhood, you are not entitled to be reimbursed any losses that may have occured as a result of Microsoft's stock price dropping in the meantime. Conversely, you do not owe any gains that the stock price may have made.
Sure it does. The point of SIPC is that if your broker goes under, and you had, say, 100 shares of MSFT and $100 in cash, you get those things even if your broker somehow comes up short. Now, what 100 shares of MSFT is worth in dollars is unrelated to SIPC and depends on the stock market.
The purpose of SIPC is to protect against a breakdown in financial abstractions at one particular level.
SIPC CEO rejects claims of coverage:
https://www.barrons.com/articles/activist-investors-on-the-m...
FWIW, some Vanguard bond mutual funds (most of the investment-grade ones) allow you to write checks against them, and those funds can lose value.
I can't find an easy link that says which specific ones, but here's their policy:
https://personal.vanguard.com/us/whatweoffer/accountservices...
Note: this isn't a general checking account that permits debit card usage, and each check must be for at least $250. But right now, you can use their Prime money market fund, which aims to avoid loss of capital ("breaking the buck" is very rare) and write checks against it, and it yields ~2.3%
So I won't buy any securities, just use it as a checking account, keeping the cash sitting there earning the 3% interest.
I wonder if there is a rule of Robinhood which prevents me doing this.
I just learned that this is how Betterment's "Smart Saver" account is as well.
> Is Robinhood a bank?
No. Robinhood offers Checking & Savings through a brokerage account and it offers the Robinhood debit card in partnership with Sutton Bank.
I want to emphasize this point. You are never* getting returns for free, you are getting paid to take on some risk. If someone is trying to sell you "risk-free" returns that are higher than widely-known market rates, they are lying to you by downplaying, omitting or obfuscating the risk associated with those returns, and warning bells should be going off in your head. Proceed with caution.
* You can of course find better risk-adjusted returns than the market by way of information asymmetry in your favor. Suffice it to say that is not the case with a consumer financial instrument aimed at "the masses" (not high net worth individuals).
Sure, but you can buy US treasury bills, and then your risk is "lose some money if the US government defaults", which is very low.
We all live every day with risks far greater than that risk level.
If you look at the current treasury yields, they are very close to 3%. Add the interchange revenue, and RobinHood can pull a 3% guarantee while still making a (narrow) profit.
If treasury yields go down, then no problem: RobinHood can instantly adjust their returns downward. If they go bankrupt because of an unlikely combination of events - lots of deposits coupled with a very sharp and unexpected decline in treasury yields - SIPC will pick up the pieces and make sure you get your cash and securities up to $500k.
My understanding is that any cash and securities you own when they go out of business is covered up to the limit. So if you have $250k in your RobinHood checking/saving, that will be guaranteed by SIPC.
DISCLAIMER: I am not a financial adviser and nothing I ever post is financial advice.
Your typical bank has far more than RobinHood's 300 employees, and far greater expenses in general.
This is an example of a disruption.
This comment just reinforces my feeling that Robinhood's business model is to extract money from credulous customers who think they are too cool for regular banks.
For example Chase has over 10 banks within blocks of each other in downtown Chicago.
Hundreds of thousands, actually.
Wells Fargo had 262,700 employees in 2017. Bank of America, Chase, Citi - all had over 200,000 employees that same year.
These numbers have only gone up since then.
There are all kinds of other risks associated with buying US treasury bills besides the US government defaulting, which is why you get paid - but you're right, the risk is low so you get paid a low amount. You have opportunity costs during the time that your money is locked up in treasuries. You also incur some inflation risk. If we are specifically talking about T-bills then we're talking about treasuries with maturities of less than one year, meaning that particular risk is low. There is interest rate risk. If you have an emergency and need to convert back into cash before the maturity date hits, you have to sell them on the market, where you may lose money if interest rates have increased. If you're investing in the treasuries via an ETF or via a broker, you are incurring additional counterparty risk.
> If you look at the current treasury yields, they are very close to 3%.
The 10-year bond is 2.91%, the 20-year bond is 3.05%. Investing in a 10 or 20 year bond is obviously different than having a checking account which can be emptied at any time without penalty and without having to go to the market to find a buyer, so there's a large maturity mismatch that's being incurred by your counterparty, RobinHood (assuming they are in fact investing in long-dated treasuries).
> If they go bankrupt because of an unlikely combination of events - lots of deposits coupled with a very sharp and unexpected decline in treasury yields - SIPC will pick up the pieces and make sure you get your cash and securities up to $500k.
The part where they pick up the pieces could take weeks or months; if you need the cash before then, you're in trouble. If you can afford to wait, you're right, no big deal. I don't expect RobinHood to go bankrupt tomorrow, but if they were wiped out as part of a wider financial crisis, it's possible that under those conditions you'll need access to your cash quicker than you think.
Every dollar-denominated investment incurs inflation risk, including any sort of cash account like a dollar saving/checking account.
> If you're investing in the treasuries via an ETF or via a broker, you are incurring additional counterparty risk.
That counterparty risk is exactly what SIPC insures.
> Investing in a 10 or 20 year bond is obviously different than having a checking account which can be emptied at any time without penalty and without having to go to the market to find a buyer, so there's a large maturity mismatch that's being incurred by your counterparty, RobinHood
But RobinHood can make certain reasonably safe assumptions about the flow of capital into their various accounts, and adjust based on that.
For example, while they're growing, every withdrawal will be matched by a great amount of deposits. So they'll always have the cash in hand to satisfy withdrawals.
Of course, if they ever stop growing, that assumption no longer holds. But the very nature of startups is to bet on growth, even at the risk of potential bust (since failing to grow rapidly means failure).
> The part where they pick up the pieces could take weeks or months; if you need the cash before then, you're in trouble. If you can afford to wait, you're right, no big deal. I don't expect RobinHood to go bankrupt tomorrow, but if they were wiped out as part of a wider financial crisis, it's possible that under those conditions you'll need access to your cash quicker than you think.
Absolutely. I would keep an emergency fund in an FDIC-insured bank account somewhere else.
You're right, inflation risk isn't particularly relevant when comparing treasuries vs checking accounts or cash. Those are all exposed.
> For example, while they're growing, every withdrawal will be matched by a great amount of deposits. So they'll always have the cash in hand to satisfy withdrawals.
Ha, if we can just assume they'll have money pouring in faster than withdrawals, even when markets experience turmoil, there's very little to worry about! I don't know exactly how sure we can be about that - or at least, for how long.
> Absolutely. I would keep an emergency fund in an FDIC-insured bank account somewhere else.
Wise, and it sounds like we're on the same page. All I was arguing is that there is some risk here that's being glossed over by selling it as just-another-checking-account-except-you-get-more-money. Maybe small/unlikely risk, but you're not getting 3% for free. You can always just go buy some IEF or TLT or actual treasuries too.
But cash in a checking account is not going to suddenly start showing negative returns.
The only example I can think of what you’re referring to is the new Betterment checking account which is basically like a security masquerading as a riskier savings account.
But I am not an expert and don't take my advice.
No private insurance company can provide such guarantees and keep then if the entire sector needs to be bailed out at the same time.
SIPC is like Fannie Mae, where the US implies a backing without making a promise. When push comes to shove the US Government gets to choose whether to do a bailout on a case-by-case basis.
FDIC is not like that at all. The US explicitly and unconditionally backs them.
Look at it in political terms. FDIC is guaranteeing everyone's savings, rich or poor. You just can't let that fail. SIPC is guaranteeing a bunch of investments. If the class in power takes a dim view of bailing out a bunch of "wealthy speculators", the ball can definitely be dropped.
Betterment has their Smart Saver[1], which offers a 2.09% rate and attempts to position it as vastly better than FDIC-insured accounts by comparing to some terrible “national average” instead of the ~2% rates that Ally, Capital One & others offer. It’s still an investment account with the risk, tax implications & liquidity challenges that such an account has.
Their misleading marketing around this is driving me away from them.
[1]: https://www.google.com/amp/s/www.betterment.com/resources/sh...
> Smart Saver’s built-in portfolio is the Betterment Portfolio Strategy’s allocation at 0% stocks, 100% bonds.
The one big downside could be is if you need cash _now_ it can take a few days (5?) before being able to use it.
> to encourage people to keep all their spare money one-click away from its investment products
These are not mutually exclusive. Robinhood could write this off as CAC that's mitigated by investments into (relatively) safe and low-yield investments. Robinhood could spend a million on Google/FB ads, or they could have an X% chance of losing an amount equal to (3%-bond yield) where X is reasonably low. The (mitigated) loss gives them access to capital and access to customers. If the 3% is permanent, there is no reason for anyone to store their money in a different checking account, as inflation will eat into their savings if those savings aren't invested. Extremely smart move on their part.
And big brokerages have offered this type of account for decades. It's usually called a "cash management account" and works just like a checking account--takes direct deposit, provides checks and an ATM card, etc.
Robinhood's innovation might simply be in calling it a "checking account" so the interest rate looks huge (it's actually small compared to expected investing returns) and marketing it to young people who are suspicious of big financial companies.
In an email to Barron’s the head of the SIPC cast doubt on
the idea that it would insure checking or savings accounts.
“SIPC protects cash that is deposited with a brokerage firm
for one limited purpose...the purpose of purchasing
securities,” wrote Stephen P. Harbeck, the president and CEO
of SIPC. “Cash deposited for other reasons would not be
protected.”
https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robi...
Perhaps. Entirely irrelevant though for the topic at hand.
The broker needs to execute instructions reliable. Doesn't matter how retarded the thinking behind the instructions is
I'm bringing this up because, while some people did lose money yesterday because of Robinhood's downtime, there we also a lot of people claiming to have lost money, but were blatantly lying.
I'm not trying to let RH off the hook, but /r/robinhood makes it sound like RH was robbing them at gun point.
I feel like most of that sub isn't technically day trading, but it feels like the average time holding a security is less than a week.
Too stressful for me.
But there are a lot of everyday people rigorously swing trading with smallish accounts. I've had some really interesting chats with uber drivers who do this, since they're sitting around in front of a phone all day anyway.
It reminds of when businesses grossing over a million dollars spend $5/month on their hosting and are offended when their site is down.
Look at the comments I linked to. That's not downtime. People's transaction history is being rolled back. Some people still have fake positions showing. Another had all his positions sold. Another got bonus buying power.
The inconsistencies in the comments are striking. Looks like a complete lotto of what happened to people's accounts. That inspires zero in their back end processes.
>makes it sound like RH was robbing them at gun point.
It pretty much is. With options timing is everything and being locked out is a disaster. Especially with the current volatility
Presumably it'll all get straightened out eventually but wow I'm definitely not putting in hard earned money on RH
>It pretty much is.
It really really isn't. This is the type of exaggeration why I find that sub insufferable.
Robinhood's stability issues are well known and normal for a fast growing, early stage startup. You as a user need to understand the limitations of the platform and incorporate them into your trading strategy.
Swing trading options on RH is like carving a turkey with a chainsaw. Sure, you can do it, but it's not the right tool for the job.
This isn't someone startup app going wonky that needs a server reboot. It's peoples money & expectations for reliability are much higher. Justifiably so.
>limitations of the platform
This isn't a 'limitation'!?!?! Their system crapped out and caused chaos
>Swing trading options on RH is like carving a turkey with a chainsaw
Agreed. This isn't about which broker is best for what strategy. This is about a broker failing to fulfil its core purpose - reliably executing orders
It totally is. The company is exactly 5 years old and has only had customers on their platform for 3.5 years. The company only has like 300 employees. It's a start up through and through.
For reference, Coinbase and Acorns are older than Robinhood.
> This isn't a 'limitation'!?!?!
It's totally a limitation in terms of availability of the platform. They are not promising 100% uptime and no reasonable person should be expecting that from an app barely out of the beta stage.
If your trading strategy can't handle a few hours of downtime, you should find a platform that has an SLA guaranteeing uptime.
> This is about a broker failing to fulfil its core purpose - reliably executing orders
It's also about understanding that shit happens, especially with startups.
I'm not trying to let RH off the hook here, but people using their platform need to understand that they are a new company growing quickly and things will break. If your lively hood depends on things not being broken then you are going to have a bad time.
Robinhood has gone down before and will go down again, don't use it if you can't handle that truth. To use an old adage "Fool me once shame on you, fool me twice shame on me"
"Sounds interesting. Is it FDA approved?"
"Well, no, it's FCC approved. You see, legacy foods are ripe for disruption because regulatory has capture created an artificial barrier to new marketplace entrants. With ifood we're able to end run that barrier by..."
"Goodbye."
Could be a bit of both.
In the past year, I think I've used my debit card for one purchase at a local small business where my purchase amount was under $10 but I didn't have any cash on me. I wanted to ensure the business didn't lose money after the swipe fees, so I used my debit card and PIN.
You don't have to be educated to actively trade, with RH or otherwise. You just need cash and confidence.
(Note, I'm not saying that is enough to be successful or make active trading worthwhile, but the customer pool isn't limited to people who should be actively trading.)
... they are paying out money to the depositor instead of the shareholders
5-year CDs are well over 3%.
For Europeans that don't know: Most Americans have (at least) those two accounts, and those two cards. They usually spend from their checking account with their credit card, and save on the savings account. When they spend on their credit card, they sometimes "earn" points, depending on what agreement their bank has with the major retailers. Salary is inserted on the checking account. Some people still receive salary on old fashioned paper checks. Some people still pay in stores using paper checks. Almost everyone, has a lot of paper dollars in their wallet since there are plenty of places in which you need it. Now, on regular intervals, for example at the end of the month, Americans then transfer money from their savings account to their checking account if the salary is not enough to cover. If they forget, they pay high interests and fees. Generally speaking, it's a hassle to transfer money to people you know and fees are hefty. When you use your credit card, no pin code is usually needed. There are regularly issues with your credit card being abused.
In the three European countries I have lived in, people have one account, and one card. Depending on your agreement with the bank, it can dip into negative (in which case you pay some interest, but usually not much). If it dips below the agreed max, let's say minus EUR 5,000, then you can't withdraw more until you receive your salary or until you insert money otherwise. People have one card attached to that card. When the balance on the account is positive, it is essentially a debit card. When the balance on the account is negative, it's a credit card. Usually, no points are earned on any spending. In most of Europe, you use your pin code if you use your credit card. Where in America, you regularly spend time on the phone talking to robots and objecting to expenditures you didn't make, that's almost never the case in Europe. People transfer electronically without any fees from account to account. If you go out, and your friend pays dinner, you can transfer your half directly from your smart phone using just his phone number (so essentially just using the contacts on your phone). You don't need Apple or Google pay or similar. It's your bank's app. No fee is charged.
Each credit card is another monthly fee, and you can't do international (Netflix) purchases without one.
In contrast with the EU (single card) system.
Yes, it is awful.
Credit and Debit cards are different things. Debit cards are the European style 'put in a pin and money is debited directly from your bank checking account'. Credit cards are a revolving line of credit from a bank - you're spending against the LOC, and settle up on a monthly basis (to some extent - there's interest and pay-over-time involved in most as well).
The difference in accounts: banks offer substantially higher (although, basically still really low due to todays market) interest on money sitting in savings accounts, and restrict the use and availability of that money. Banks backed by the Federal reserve have to maintain a minimum ratio of deposited money to loans, and these restrictions/incentives are how they keep those in line and stay legal.
And for what it's worth, 99% of my spending is on a credit card, which I pay off monthly. I can't remember the last time I used cash or paper checks.
We also have many different ways to transfer money around, etc. using apps and things.
This may result in overdrafts from other automatic payments or not being able to pay for things you need, until the money is restored to your account.
Same thing happens on my credit card: the credit card company floats the missing cash for at least 30 days, at no loss to me while it 'gets worked out'.
And that's with everybody (merchant, bank, etc.) agreeing it was an accident. If it was actually fraudulent, I dunno how long it'd take...
"Credit card" would be a third account that is purely debt-based. It's optional, and you can spend directly from your checking account with a "Debit card" instead. It's just not advisable, due to the broken-ass card system you described.
"Savings account" is optional, but earns interest. Does your single EU account earn reasonable interest? Long term deposit ("CD" and "Term Share") rates are currently around 3%, with savings paying 2%.
Combining checking and savings accounts can be done in the US in 2018. The 3 major online banks all allow you to setup an automatic "overdraft transfer", so you can deposit into your savings account, spend out of the checking, and have money automatically move between them. The remaining caveat is that you're limited to six of those movements from the savings per statement, which makes aggregating small transactions on a credit card handy.
I expect the caveat with this Robinhood offering will be a cap on the balance that earns 3%. You can find plenty of checking accounts with high nameplate interest (search for Kasasa), but they all demand some level of ongoing mindshare activity [0] and limit the amount they'll actually pay out, rather than functioning as true savings/moneymarket.
[0] Usually a certain number of debit card transactions per month, to better feed the surveillance databases.
One might argue that one benefit of the European system is that credit card processing fees imposed on the retailers are regulated, which ultimately causes credit card "points" to be uncommon. This in turn makes life simpler because there is no need to game the credit card benefits system. You can, however, get up to 0.5% cash back at least where I live.
Credit cards are mostly used by businesses but individuals rarely have them as they are hard to get in the first place.
In France, it is also customary to use your checking account with an allowed overdraft amount.
That means you can end up with a balance of -500 euros but do not have to pay fees unless you go over this agreed amount.
This amount is negotiated with the bank when you open your account and can vary depending on your monthly salary.
Unlike a credit card though where you can spend as long as you have money left on your card, the bank can cancel your overdraft and ask you to reimburse the money at any time.
You do not earn points with the overdraft and contrary the Credit card system where having a credit card and spending some money actually increases your credit rating so long as you pay the money back in time, using your overdraft is considered a bad thing by most banks.
They are still going to give you the overdraft because if you go over the agreed amount then the fees become staggering.
They basically prey on poor people.
> Most Americans have (at least) those two accounts, and those two cards. They usually spend from their checking account with their credit card, and save on the savings account.
This is not true. A), most Americans do not have two accounts. The card used on your checking account is a debit card, and it does not allow you to have a negative balance without incurring a penalty fee. A credit card is a completely separate instrument that allows you to spend from $0 to -$<credit limit> with the understanding that
> When they spend on their credit card, they sometimes "earn" points, depending on what agreement their bank has with the major retailers.
This, broadly speaking, is not true. The bank rarely, if ever, has any direct dealings with the retailers. This is mostly done through the payment network (Visa, MasterCard, etc., which Europe has as well).
> Salary is inserted on the checking account. Some people still receive salary on old fashioned paper checks. Some people still pay in stores using paper checks. Almost everyone, has a lot of paper dollars in their wallet since there are plenty of places in which you need it.
This is not true. Income is deposited wherever you indicated to your employer. This can be separated between savings accounts, retirement accounts, checking accounts, investment accounts, or even deposited directly to prepaid cards. Check paying is exceptionally rare among people under 50 (except for some holdouts, like apartment complexes), and virtually nobody carries wads of paper dollars around anymore. Many trendier stores in cities are now 100% cash free and do not handle paper money at all. Checks might still be issued, but most banks offer instantaneous deposit via smartphone.
> Now, on regular intervals, for example at the end of the month, Americans then transfer money from their savings account to their checking account if the salary is not enough to cover. If they forget, they pay high interests and fees.
This isn't true. For one, the only reason to transfer money from your savings account to your checking account is if you need to make a purchase with your saved funds, i.e. you've spent in excess of your means for that month. The purpose of a savings account is... to save. The idea is the number of withdrawals from the savings account are limited (by law). In return, the bank can offer you higher interest on your deposits because the money is less mobile. In the past, these interest rates were decent (over 4% APY was not uncommon). Since the financial crisis, savings accounts from major banks have offered insulting low rates (in some cases 0.05%).
You pay fees for drawing a negative balance in your checking account. Every bank now has the ability to link both savings and credit accounts to automatically cover these "overdrafts" automatically, with no user input.
> Generally speaking, it's a hassle to transfer money to people you know and fees are hefty. When you use your credit card, no pin code is usually needed. There are regularly issues with your credit card being abused.
This is somewhat true, but most banks are good at catching fraud before it becomes an issue for the customer. Europe, I might add, is not immune to credit card fraud despite using PIN codes for credit transactions. Debit transactions in the US commonly require a PIN code and have for decades, however this PIN code is not attached to the card chip like on European cards.
Beyond this, it isn't like Europe is some alien planet. There are definitely countries in Europe which offer the Checking/Savings/Credit structure.
As an American, I agree with all of the corrections in your comment except for this one.
I'm willing to accept that your employment history is different than mine but I've never had an employer that supported this and I'd be really surprised if most Americans did.
My employers have given me a choice: paper paycheck or direct deposit of the full amount. Full stop.
My last employer even let me choose if I wanted monthly, bimonthly, or biweekly paychecks.
[Edit: I shouldn't say that it's odd. It just runs counter to my experiences is all.]
This hasn't really been true for a long time. Most banks participate in Zelle, which lets you transfer money for free to just about anyone via your phone. Every national or regional bank I can think of is a member. Venmo also does this.
"in America, you regularly spend time on the phone talking to robots and objecting to expenditures you didn't make"
Regularly? I am a heavy credit card user and I've had a card compromised once about 10 years ago. I talked to a human at the bank to clear it up and they had a new card in my mailbox the next day.
The whole "points" thing is an oddity, I'll grant. But we're used to it and it's highly advantageous to the consumer if you pay off your cards every month. It's worth about $1000 per year to me.
Going negative in an easy to transact, straightforward pay-for-amount-and-duration-of-debt from your bank has no US equivalents.
Having an unsecured line of credit along with your checking account is extremely convenient if you generally try to invest your savings and very occasionally need to go under temporarily.
It's not like a credit card. The super multi-faceted it-can-very-conditionally-be-used-to-consolidate-cash-debts-with-low-introductory-APR-but-is-also-a-purchase-transactional-tool-with-a-grace-period-except-when-you-break-it-then-you-get-20%-APR-and-get-charged-retroactive-debt-from-the-time-of-transaction-plus-all-your-subsequent-transations-all-have-no-grace-periods-until-you-do-something-magical-to-reset-the-state-of-your-account-and-all-that-except-when-you-do-any-cash-advances-in-which-case-all-bets-are-off is unexplainable and uncalculatable for normal people.
It's not like a loan because loans need paperwork and issuing per instance per purpose. And each time you use it triggers effects on your credit score. A line of credit is always there and free if you don't use it and you can use it on a whim for any arbitrary reasons.
It's not like taking money out of your investments because liquidating assets and possibly transferring between your brokerage and banking accounts can take a week. A line of credit can be cash in your checking account in milliseconds.
Edit: correction, it's not really inaccessible in the US, just a fringe product with 12% APR and other catches like no debt monthly fees vs 5% and no catch in Canada.
No other U.S. bank that I'm aware of offers this feature. This feature is fairly hidden on their website. I read about it somewhere, and asked about it through their chat. The gave me a link to a PDF application form. I had to print out the PDF, fill it out with a pen, and mail it out (you can't apply online). I was approved a week or two later.
[1] It's the Bank that offers this -- not the brokerage service of Charles Schwab. There's a second overdraft service offered through Charles Schwab itself -- this overdraft service is a margin loan secured by equities in your brokerage account. You can actually combine both overdraft services. The Schwab Bank Overdraft Line of Credit application form asks which type of overdraft line of credit to use first.
Banks are going to have to decide whether they want to raise their rates to compete, or face bleeding customers.
The best part is that the money comes from merchants and credit card companies, and is being returned to consumers.
Robinhood truly is living up to their name: stealing from the rich and giving to the poor.
I'm sure the big boy banks are here stay. Most of them are in the category of, "too big to fail" (as the crisis a decade ago highlighted) and upstarts like Robinhood are but a blip-in-the-radar than a real threat to the established players, imo.
In fact, if they lose their customers they will no longer be "too big to fail".
RH likely won't sustain this interest rate, and it's more akin to a temporary promotional play to acquire new traders.
Also, business banking and loans in general will never be something that happens on an Robinhood. At least not in this generation. These types of entities require a man in a suit in an office.
Generally, you really shouldn't be keeping much in a bank anyway, invest most of your money, even if only in ultra safe bonds.
The real point though was that IMHO aside from your emergency money, you should really have as little in cash as possible. My other callout was that high interest rates didn't appear to steal any significant business from big banks in the past.
I can only imagine everyone in /r/churning jumping on this if they have an invite.
The US 10-year is on the other hand is near 3%.
I haven't checked everywhere in the eurozone but a lot of major banks have online brands/products that are typically free. You should be able to have at least a checking account and a debit card without paying any fees. "Neobanks" are also a lot more developed than in the US: see N26, Revolut, Ferratum, ...
Savings accounts yield nothing, but that has nothing to do with retail banks :) That said, you can find fixed-term deposits between 1 and 2%: https://www.raisin.com/
I'd love a checking account, with no fees that pays 3% on the whole balance.
My average balance on my current account is around £20k. My interest would be £600 a year at 3%, as opposed to £25 or so I get now.
I could open multiple, but then every month I'd need to spend time transfering money to each to earn the interest. Im not sure that would even count towards deposited every month, they might want to see a direct debit that is actually a salary. I'm not sure.
Further, I have an ISA (which is the UK tax free saving accont), that earns under 1% too and I'm limited to £20k a year into that account.
I have another account that pays ~2.x% per year, but on that one I'm limited to £250 a month.
Interest rates are abysmal right now in the UK.
For what it's worth, here in Australia they have similar offers. At one bank, I said I wasn't interested because of the regular 'salary' deposit requirement, and that bank offered to set me up with two accounts and a regular automated transfer between them to meet the minimum monthly deposit requirement. Though honestly, the fact they offered to do that concerned me even more.
However, if you're looking for something slightly better than what you've got now there are currently a fair few 1.5%ish easy access accounts available that you could just dump your savings in and make a fair bit more than you're currently getting. You can get 2-3% if you're willing to lock some up for a year+.
ISAs are irrelevant for most people since the personal savings allowance came in - if you're earning less than £500/£1000 per year in interest (depending on income) then you won't pay tax anyway.
moneysavingexpert.com has excellent round ups of this sort of thing.
This is a 30 second job setting up a free ongoing standing order, one to deposit then one to move the money elsewhere the day after every month automatically. This is sufficient to meet the pay-in requirements of all the banks.
> they might want to see a direct debit that is actually a salary
Salaries aren't paid by direct debit, that's something else - an agreement that allows a company to withdraw a variable amount from your account. Some banks have a requirement that you have x direct debits setup (normally 1 or 2), you can work around that with something like https://littledebits.co.uk/Direct-Debits-and-Charity
Cash ISAs serve minimal purpose with the new personal savings allowances. If you're a higher rate tax payer you get £500 tax free, £1000 if you're a lower rate cash payer. I'd question why you're holding so much cash if you're getting a return higher than that, there's often better places for your money.
Or look into an offset mortgage.
Even bog standard instant access accounts are above that, and have the added benefit of not potentially losing all your money when you debit card gets nicked.
from what I understand Tesco bank had purchased bonds/securities/whatevs with a 5% interest rate, so made 2% off the deal. (and a slew of new customers worth x each to the bank)
Hopefully something similar is funding this
But the half baked eu ruling on merchant fees screwed savvy investors and the banks found another way to charge merchants.
They have limited account opening at various times though.
If both banks invest in whatevs (local currency) paying 5%, then they get 5%, pay you 3% and make 2%.
Are you trying to reference relative inflation?
Or something about the USD makes it difficult to invest?
30 year US treasuries are now also above 3%, and we may see that continue with shorter-term instruments so there's a hedge there as well.
It will be interesting to see if they
* maintain a 0.5% spread above the best nationally available rate as rates rise elsewhere as an ongoing customer-acquisition cost
* just stick to 3% even as other banks raise their rates higher over time, assuming that 3% is good enough and their product is sticky enough that people won't move
https://support.robinhood.com/hc/en-us/articles/360001226966
Selling high cost first is likely the best strategy but if say you had some that was long term versus short term capital gain that might lead you to make a different decision on a particular case. Also if you had a choice to sell something that is about to be a long term gain versus one that you bought much more recently you might want to sell the more recent purchase first (in the event you were going to sell again say in a month - which could let you claim a long term gain for the 2nd sale). So there are reasons to make different choices in individual cases.
For example, I didn't see anything about how funds are insured. If Robinhood were to somehow lose depositor funds, what recourse would account holders have?
They're SIPC insured (like a brokerge account) instead of FDIC insured (like a bank account) which is a subtle difference and ever-so-slightly riskier for the consumer but not terribly different.[1] The biggest/riskiest difference is that the insurance here is provided by a group-funded non-profit as opposed to the federal government.
But mostly it's about making up the difference with your data.
[1]https://www.schwabmoneywise.com/public/moneywise/essentials/...
Banks make boatloads of money without needing to sell data, but rather selling loans. Not even needing to loan money, offering 3% interest, with how high treasury notes are these days, is _really_ easy for banks to do. The problem is that generally banks also have really high overhead, something Robinhood doesn't.
The Gramm-Leach-Bliley Act requires "financial institutions" to give customers the opportunity to opt-out of information sharing with third-parties. GLBA doesn't permit customers to opt-out of information sharing with affiliates. Tucked on the second page of Robinhood's privacy notice[1] (which is curiously absent from their "disclosures" webpage) you'll see they have an affiliate "Chronos Research."
[1]https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...
I'm curious what the harm here is. Are they going to blackmail people who shop at their competitors?
The 30 year treasury rate is barely over 3% so I'm honestly not sure how they can make any sort of real money on this. I would expect the rate to change over time, especially if the 30 year dips under 3%. But it seems theoretically possible given the absence of brick-and-mortar spaces and all the overhead and costs that comes along with that.
EDIT - I forgot about the interchange fee sharing when you use the debit card. So that is where the profit would be. Seems like the goal is to target roughly the 30 year treasury rate and pass that through to the customer and they can breakeven. And the profit comes from actually using the debit card. Not to mention potentially selling that user data.
It is listed directly on their Checking & Savings page, it has it's own featured section, you only have to scroll twice to see it.
> Every Robinhood account is SIPC insured up to $250,000 in cash and protected by modern encryption so you can rest easy and save confidently.
That’s pretty bad so the account get zeroed out by identity theft, or embezzlement, or robin hood going bankrupt. These are all terrible risks for checking accounts (or money market even). This is basically investing in RobinHood in an easy manner.
[0] https://en.wikipedia.org/wiki/Securities_Investor_Protection...
I doubt the ATMs at Target/7-11 can take cash deposits. I've only seen that feature on bank branch ATMs.
I've had no trouble personally going basically cash-free. If someone gives me cash for some reason, I just buy the next grocery run with it to use it up.
Even then I think for cash I might be more comfortable handing it to a teller and getting a receipt.
These third party low-rent ATMs at convenience stores don’t even take deposits. They are withdrawal only.
This was resolved after about 2 hours on the phone with the company who manages the machines, but I still don't use them anymore.
How can you prove if it was you or them that miscounted?
Modern “envelope-less” machines do not have this risk.
Counting cash by hand is surprisingly error prone. I ran a snack bar in high school and I would hand-count a large pile of grubby $1s before bringing to the bank. About once a week the total from their counting machine would not match my tally. I think even once it was the machine that got it wrong.
If you’re face to face with a human you can error correct before the pile of cash disappears.
See https://krebsonsecurity.com for a ton of articles about various skimmers and scanners that have appeared in ATMs and gas pumps.
Does not compute. If it compounds daily then yearly total is above 3%
Investing day to day with the money in your checking account is probably not a recommended personal finance practice but I definitely have more money in my checking account than I probably need this month because moving money is too painful.
"Robinhood Is Making Millions Selling Out Their Millennial Customers To High-Frequency Traders" [1]
"Robinhood Investing App Secretly Makes Millions Selling Millennials' User Data To HFT Firms" [2]
[1]https://seekingalpha.com/article/4205379-robinhood-making-mi...
[2]https://www.zerohedge.com/news/2018-09-15/robinhood-investin...
They are not bad guys’s. They are still making money(surprice!?), but they are much much more modest about it than traditional banks. This account is a fine example. They don’t need to give you a 3% deal, but they are doing it anyway because it’s benefitting both them and their costumers.
There are other alternatives, e.g., credit unions.
Users of Robinhood Checking and Savings earn 3% interest annually on each of their Checking and Savings balances. Robinhood does not charge account maintenance, account minimum, overdraft, ATM, transaction, foreign transaction, transfer, or card replacement fees for Robinhood Checking and Savings. Robinhood Checking and Savings is offered through Robinhood Financial LLC. Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account. The Robinhood Debit Card is issued by Sutton Bank pursuant to a license from Mastercard International, Inc. Neither Sutton Bank nor Mastercard International, Inc. are members of FINRA or SIPC.
“Users of Robinhood Checking and Savings earn 3% interest annually on each of their Checking and Savings balances.”
I would have thought a more precise disclosure would be required. But it certainly does not say anything about fixed, guaranteed, etc.
Presumably when you get to actually creating an account there will be more specific terms which must allow them to adjust the rate in the future.
But it does not seem to be a kind of “teaser” rate. It seems like, I’m guessing, that everyone with a Robinhood Checking account will get the same rate, if they change it in the future it would be a product-wide adjustment.
https://checking.robinhood.com
>Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account.
This enables shifting of revenue from other fees to help support the 3% rate.
(https://old.reddit.com/r/M1Finance/comments/9hk0dc/m1_team_a... has some light details on the M1 banking product for anyone interested)
I was just highlighting the horrible rates that banks currently provide in the customer's favor even if you are a loyal patron holding a substantial (for the vast majority of people) sum of money.
[1]https://www.bloomberg.com/news/articles/2018-10-15/robinhood...
> Almost all retail brokerages employ the practice
The FSA (U.K. equivalent to the SEC) effectively banned the practice a few years ago (2010 maybe?) which curtailed the practice a lot. I'm not sure about other states but the Massachusetts AG's office started looking into it last year, too. Its essentially a kickback paid in exchange for information that allows the "smart money" institutional investors to front-run the "dumb money" retail investors.
Here let me link it to you: https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-...
I used to work with Peter Kovac, the author of that book, and can personally vouch for his integrity. He's a really humble and stand up guy.
Every single broker like Robinhood sells order flow to electronic trading firms. This flow is then executed faster due to improved market access. All of that to say that you're probably getting better execution because Robinhood wasn't stupid enough to try to go through some crappy broker or build their own order entry system.
Also, the order data can not be mapped back to you. That simply isn't how the stock market works at all. Every single other broker (Schwab, Merril Lynch, etc) does this.
Source: I work for one of those big market making electronic trading firms, the kind you try to demonize but fail fundamentally to understand.
You might work in IT for a market making electronic trading firm (it's not big, I looked them up). I'm a securities regulation attorney. I've worked for banks, hedge funds, and RIAs. This is so far away from best execution that any attempt to argue that this is to the consumer's benefit shows you fundamentally do not understand the fiduciary duties that brokers are supposed to owe to their clients. You're parroting the party line without fully understanding how the system works (and why should you? you're just a distributed systems engineer) yet you have the audacity to tell me in another comment that I've "read Flash Boys" without doing any research and don't understand how the stock market works.
Okay, bud.
This is just marketing to attract the millennial crowd and get them to gamble their money away on stocks(benefiting robinhood of-course).
https://support.robinhood.com/hc/en-us/articles/360001469903
Is my money insured?
Your cash in Robinhood is insured up to $250,000 by the Securities Investor Protection Corporation (SIPC). SIPC protects cash deposits in your account in the unlikely event that Robinhood fails.
Up to what amount?
SIPC insurance covers your checking, savings and investments. Your cash and securities in Robinhood are protected up to a total of $500,000 by the SIPC, $250,000 of which can be in cash, the rest in securities. SIPC insurance provides protection for your cash balance and securities holdings if Robinhood fails financially, but does not cover investment losses due to declines in the value of securities themselves.
Is this different from bank insurance?
Similar to FDIC insurance, SIPC protects cash in your account if the financial firm fails. FDIC insurance covers deposits in FDIC-insured federal banks. SIPC insurance covers cash and securities at SIPC-member brokerage firms. Robinhood Securities, LLC is a member of SIPC. Additional information can be found at sipc.org.
So no coverage against, i.e. fire, flood, robbery or embezzlement [2]. The first 3 may not be relevant with digital bank that doesn't handle cash, but the last one might be.
EDIT: I misread the second reference. apparently FDIC does not insure against theft or embezzlement, but according to the first link FDIC does provide blanket coverage unlike SPIC. it's still not clear to me what blanket coverage means in this instance.
[1] https://www.schwabmoneywise.com/public/moneywise/essentials/...
[2] https://www.fdic.gov/consumers/consumer/information/fdiciorn...
https://www.fool.com/investing/brokerage/2014/05/11/what-sip...
>SIPC does not protect customer funds placed with a broker-dealer just to earn interest.
In this case, doesn't that mean the people who just use Robinhood has a checking / savings account aren't covered?
I'm wondering:
First, whether Robin Hood is lending out deposits to margin traders. If not, what are they doing with the money? I don't think that they are, as the article implies, making > 3% on US treasuries.
Second, if that investment loses money, are those losses passed on to account holders? If not, someone must be insuring that investment. Who?
Neither does FDIC, right? Still doesn't explain what FDIC "blanket" coverage offers that SPIC doesnt
[0]: https://support.robinhood.com/hc/en-us/articles/360001469903
1) They lower the interest rate down the line after they've acquired a bunch of customers
2) They limit the offer to certain customers who are lucrative
If they sustain this offer for the general public, they will 100% go out of business.
The 5 year treasury rate is currently set at 2.75%. Traditionally, people use treasury bonds as a place to park safe money, but the SIPC insurance makes this just as safe (up to $250K).
Is there any risk to the SIPC insurance vs FDIC-insured?
Monzo has blown up in the UK, and I know their team is growing at a crazy rate. While they aren't profitable yet, they plan to sell financial services through their marketplace (insurance, mortgages etc.) which seems to be a major source of potential income for them (source: https://monzo.com/blog/2017/11/16/monzo-marketplace/)
But when you look at it, it's actually not particularly useful. You want to put money in, and take money out right? In this account, you basically can only withdraw money in 3 ways: 1) use their debit card (inc ATM) 2) transfer money out to a bank via their brokerage account 3) have them mail a check (up to $2500 per day)
This excludes all sorts of common use cases: 1) auto pay credit cards 2) link to venmo / other app 3) use other debt cards (e.g., Target) 4) give a check to someone in person 5) make larger payments (e.g., mortgage) ...etc...
My guess is these restrictions are there to protect themselves financially. As they reach a certain mass of users, they may relax and be able to take on more risk.
I don’t think the whole “we don’t have branches so we can pass along the savings to you” thing is as defensible as it was 5 years ago. Other businesses can do the math and move in that direction if pressured to do so, and it seems like some of the bigger banks already are.
I'll be staying a Schwab customer.
I think I've spotted the problem. Seriously though, look into your available local Credit Unions. There are plenty of good credit cards with no foreign transaction fees as well (some of which are from larger banks).
Stop using debit cards because they don’t have the same fraud protection as credit cards.
Inflation is around 4% [1], the account is only insured up to about $3500 (if you are lucky) and VND keeps deflating in value against USD. Never mind the US tax filings take another chunk.
There is always a catch.
If they use longer term bonds, they will face potential losses as those tend to be volatile relative to interest rate changes. If they use higher-yielding corporate bonds, they face default risk.
There's something critical that's not being explained here which is important, and I wouldn't want to put my money in something like that without understanding it thoroughly.
Easy. They're making a calculated decision to lose money on the interest rate, in order to build a relationship and make money on other services.
It's a deal to get more trading accounts opened, both directly (people coming to RH for these accounts, which are not separate from trading accounts) and indirectly (e.g., it's a waitlisted feature that you move up in the waitlist by referring people to RH.)
They don't need to make money on the savings feature considered in isolation.
But credit unions and especially new small players like Robinhood aren't going to threaten PNC or BoA or Chase. So why would they give up free money if they don't have to?
Remember we're talking about checking accounts, not mutual funds. It's not a real investment. You might as well get something even if it's small.
Basically, Robinhood is subsidizing this 3% interest rate with investor dollars. Of course, there having a higher reserve lets banks lend out more money, but I'm not sure that's worth paying a 1% premium over.
"In an email to Barron’s the head of the SIPC cast doubt on the idea that it would insure checking or savings accounts."
source: https://www.barrons.com/articles/robinhood-app-is-offering-a...
Capital One currently offers 5-yr CD for 3.15%. I just signed up for Citi Priority to save a few pennies on "foreign transaction fees," but it pays paltry 0.03%. That 3% sounds to good to be true, but it's probably not impossible.
Edit: Looking at today's market and interest rates.
If my bank can't compete with this then I will be moving some cash savings into a new Robinhood account.
Just wondering how robinhood shows all my friends though I have not connected robinhood to any of my social network. I feel this as a big privacy issue and it’s concerning a lot.
* Marcus' interest rate is also adjustable and is lower than 3%.
* Marcus has no ATM access/debit card.
* Getting money out of Marcus requires it to be transferred to another checking account.
Ally Bank, American Express National Bank, Discover Bank pay 2%.
Google "high yield savings" for lists that are updated monthly.
However, this Robinhood offer is for a "checking" account, which while not actually a checking account, still offers the liquidity of one. Savings accounts have a limited number of monthly transfers you're allowed, and you can't use one with a debit card as your main payment account.
> Earn up to 2.05% APY on balances of $25,000 & up and meet your savings goals faster. Don’t quite have $25,000? Radius High-Yield Savings still earns 1.50% APY on balances of $2,500 to $24,999.99.
People routinely have their money stuck in Robinhood with no response from support.
Cannot recommend using them.
Most calls are "where's the driver" and has honestly been partially automated but older clients still like to call.
Either way, it takes humans to make sure the 600k customers don't fall through the cracks.
I literally haven’t seen a check used anywhere the last 25 years. I doubt any place I frequent would accept one.
In fact I don’t know a single bank which issues checks...
I assume most university students these days wouldn’t even know what a check was, if given one.
So where is the market? The past? I mean... you’d need a time machine to use these, right?
In America, the barebones basic place to keep your money is referred to as a 'checking account'.
Why bring in the term “checking” if it’s not related to checks? I’d call that being intentionally confusing.
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It's been pretty good business for many banks for years. ???