Robinhood aims to court users with 1% interest rate on cash | Hacker News Reader

Robinhood aims to court users with 1% interest rate on cash

techcrunch.com

25 pointsprostoalex42 comments

I love how all these companies offering high-interest accounts basically use two tricks in their playbook. First, they use the old "16x as much interest" which is technically true, but really 16x a number that is basically zero, sounds much better than it is.

Second, they offer these rates for a little bit then when people have switched over and would be too lazy to switch back, they drop the yield again.

The second point is not my experience with two institutions (a credit union, and Robinhood). In both cases they consistently tracked the federal funds rate, raising and lowering my account interest as market conditions changed. There has been no rug pull. For several years.

E*Trade did this quite a few years back - 10 or 15, IIRC. They used to offer a "max-rate checking" account that did a quite good job of coming close to matching the top rates you could shop around for. And then they decided they wanted out of the banking business, as far as I could tell, and dropped their rates to something like 0.01%. They've now outsourced it to morgan stanley's private banking and it still gets 0.05% (about 1/12 of what you can easily get at other banks).

My experience over many years is that about a half of the accounts that I've opened at high rates have continued to track prevailing rates, and the other half went down to essentially zero (e.g., 0.05%) and stayed there.

At least one competitor has 1.25% with minimal strings. I think Robinhood is going to have to do better if they want a meaningful amount of folks to park their cash with them.

Mind mentioning the competitors?

Sofi

Only with direct deposit set up, otherwise it's 0.70%.

One Finance has a 1% savings account, and a 3% high-yield account that you need to jump through some hoops to fund (you can't put money into it directly, you can only skim 10% of any paycheque that you pay into your overall account)

This is a brokerage account, not a savings account

There's a meaningful difference as you can't keep funds you're waiting for an opportunity to buy with in a savings account (unless you want significant delays, thanks US banking system)

More than this, you can have the funds in your brokerage account backing cash-secured puts. I'm not sure if Robinhood allows their customer to write options, so that may not be the case here.

Oh, fair.

Lots of competitors have better rates with strings attached. But among the major brokerages, interest on cash positions is unusual. And even HYSAs are not cracking 1% yet AFAIK.

I was wondering about this. RobinHood has offered interest on uninvested cash for a while. Once rates were dialed down, nobody seemed to care, but now that rates are going up it is more important.

Recently when they announced their new card program, they mentioned that they would no longer be paying interest on cash. I am grandfathered into the new card program, but I was still thinking of leaving the brokerage before they kicked me off.

I got an email last week saying they increased their interest rate for uninvested cash. I was wondering if that was just for the old program or it was part of their future plans.

This is a nice clarification. I think.

Edit: this page seems to have changed since I last read it: https://robinhood.com/us/en/support/articles/difference-betw... Specifically the interest rate portion. Looks like they are including this in the new cash/card system they have.

Surely with robinhood you can buy lots of bonds and bond-like government backed securities which have returns over 1%?

Edit:. I put this comment here a few days ago.... And suddenly it says '19 minutes ago'. What happened?

Principal risk, though.

Like T-bills, which return 2% for a year?

https://home.treasury.gov/resource-center/data-chart-center/...

That's opportunity cost since you lose liquidity

You may lose money if you sell them before maturity.

Story probably resurrected in the “second chance queue” and comments ported over.

I hate that. It's creepy deja vu gaslighting.

And then you don't have cash.

Maybe this post was given a second chance?? Not sure

More trickery to separate impulsive amateur retail investors from their savings

Ah yes, all those impulsive amateurs signing up for HYSAs and holding large sums of cash where this actually matters.

What’s the plan for Robinhood to make money? Brokerages used to make it on fees, but now everything is no-fee. Can make it on payment-for-order-flow, but that seems to be under attack. Then you can make it on the 0% money sitting around, but that’s harder if you also want to be high yield.

They make money by being a middle man between investors and market makers, giving market makers precious real time data

They don’t just give the market makers data, they match them with customers. That’s payment for order flow. This model is slightly threatened since some people don’t like it and even the SEC chairman has spoken against it (I said “under attack” above and that’s a bit dramatic).

Exactly, PFOF does not involve selling data. The spread available on the stock market reflects the potential toxicity of random orders to market makers; it is risky to market make large volumes of a security to an unknown counterparty (who might know more than the MM). The spread pays for this risk.

It is not as risky to market make securities for retail investors; they probably don't have insider knowledge and are low-volume. So, PFOF routes retail orders to the market makers, where it likely executes at a better price/spread than the public market and also gives the brokerage a tiny commission in the process. And is still regulated by NBBO...

wdym make money??

-- vlad, probably

I'll never trust them with another dollar of my money after what happened last year. Letting people buy options and then turning off the ability to sell them to anyone else on the platform.

Wasn’t it the other way? They stopped letting people buy but let them sell.

Some say this was deliberate as their major investors/partners were short and getting obliterated.

Combined with inflation that makes for -7.3%/year. Generous!

2 year treasuries paying close to 3%. not bad

They really need to tap into the 401(k) market but we all know how that is going to end for retail investors…

IRAs would be way easier, right? Do Vanguard or Schwab do 401ks/403bs? I thought only Fidelity had started in on that market.

Vanguard and Schwab both do 401(k)s.

Vanguard delegates self-directed 401k to Ameritrade.

Vanguard has their own Vanguard-branded self-directed 401(k), but your employer has to support the option.

Except if you’re a pattern day trader (even with more than 25k) in which case you get the middle finger and nothing. Zero interest. Which is ridiculous because they make more money on these people.

If someone is pattern day trading on Robinhood, they’re not likely to notice let alone be deterred by such details.

Or actually have any significant funds.

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