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Robinhood launches 3% checking account

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Re: Robinhood launches 3% checking account

#151

Post by scarejunba »

patio11 wrote: post #115

For folks trying to understand this, some context which may be useful: 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…

But also, worth asking oneself "Are search engine companies likely to be bad at searching?" and "If geeks could make a search engine, is a $50 million revenue search engine company incapable of hiring their own geeks?"

Re: Robinhood launches 3% checking account

#152

Post by mlthoughts2018 »

delecti wrote: post #129
dudul wrote: post #119

Earlier quoted context omitted.

Just to add a 3rd question to balance the other two: "Are financial firms able to change the way they've operated for decades (centuries?) easily?"

Your question seems to be implying that you believe financial firms are more stupid than greedy. In contrast to Hanlon's razor, I think it's usually fair to assume greed over stupidity.

You are just wrong. Being unable to overcome bureaucracy or organizational tech debt is not a matter of stupidity, and various actors up and down the hierarchy can have misaligned incentives that ensure it remains contentious and political.

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.

Re: Robinhood launches 3% checking account

#153

Post by 09bjb »

mcv wrote: post #114
snowwrestler wrote: post #95

Earlier quoted context omitted.

Maybe: > 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 accoun…

What are securities in this context? Is that not something that you personally choose to invest in? 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 Robinh…

Not an expert in this domain but I'll cover the basics: ecurities are a euphemism for stocks and similar. Banks have been loaning out the money you deposit since the beginning of time; it's how they make money. They don't keep all the cash that people have deposited on hand, which is why a "run on the bank" was problematic in the past. They basically keep enough cash around ("reserves") so that the average withdrawals don't get them into trouble. And yes, you are certainly not choosing the investments that the bank makes with your money. And they're not "your" investments: the bank pays you a small fee (3% in this case) and then takes risks with your money to make a higher return and keep the difference.

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.

Re: Robinhood launches 3% checking account

#154

Post by abhiminator »

a13n wrote: post #104

This is massive news. 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.

>Banks are going to have to decide whether they want to raise their rates to compete, or face bleeding customers.

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.

Re: Robinhood launches 3% checking account

#155

Post by wool_gather »

iknowordidthat wrote: post #150
patio11 wrote: post #115

For folks trying to understand this, some context which may be useful: 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…

In answer to your metacomment. The financial crisis is a strong indication that, yes financial firms can be terrible at math. Luckily, they have friends who can bail them out with taxpayer money when they fail at math.

Was that them being terrible at math, or them covering their eyes and singing "lalalala" to pretend the math didn't exist?

Re: Robinhood launches 3% checking account

#156

Post by Glyptodon »

durkie wrote: post #136

PSA: those using Robinhood for trading, they use the FIFO/first-in-first-out method for determining your cost basis when you sell. This can have unexpected tax consequences. https://support.robinhood.com/hc/en-us/articles/360001226966

As someone with limited investment experience, what's a more normal strategy? Highest cost basis first? What are the pros/cons?

Re: Robinhood launches 3% checking account

#157

Post by zeroname »

novaRom wrote: post #64
MrL567 wrote: post #38

Earlier quoted context omitted.

Interest rates for banking accounts for quite some time have been low. 3% is very high for the USA so it' s a pleasant surprise for many people.

Also 3% is astronomical for Euro zone. Here you typically have 0.01-0.1% on saving accounts (only for 100k Euro and below), and negative rate on checking accounts (most people usually pay 7-12 Euro per month for checking accounts and 20-40 Euro per year for Visa card).

...which is appropriate when "risk-free" government bonds hover near zero percent.

The US 10-year is on the other hand is near 3%.

Re: Robinhood launches 3% checking account

#158

Post by dudul »

delecti wrote: post #129
dudul wrote: post #119

Earlier quoted context omitted.

Just to add a 3rd question to balance the other two: "Are financial firms able to change the way they've operated for decades (centuries?) easily?"

Your question seems to be implying that you believe financial firms are more stupid than greedy. In contrast to Hanlon's razor, I think it's usually fair to assume greed over stupidity.

I never implied that. Stupidity has nothing to do with the inertia that comes with big organizations and institutions.

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.

Re: Robinhood launches 3% checking account

#159

Post by mherdeg »

kin wrote: post #23

Unless I'm completely ignorant of what's out there, 3% interest on a free personal checking account is absolutely bonkers. I can only imagine everyone in /r/churning jumping on this if they have an invite.

It's slightly above the best nationally available current rates (2.5% APY -- https://www.fragiledeal.com/t/best-nationally-available-high... ).

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

Re: Robinhood launches 3% checking account

#160

Post by kinkrtyavimoodh »

wool_gather wrote: post #155
iknowordidthat wrote: post #150

Earlier quoted context omitted.

In answer to your metacomment. The financial crisis is a strong indication that, yes financial firms can be terrible at math. Luckily, they have friends who can bail them out with taxpayer money when they fail at math.

Was that them being terrible at math, or them covering their eyes and singing "lalalala" to pretend the math didn't exist?

That distinction is irrelevant to the current discussion if the outcome of both scenarios is 'unmathy'
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