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Robinhood launches 3% checking account

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Re: Robinhood launches 3% checking account

#241

Post by russell_h »

danans wrote: post #70
codeulike wrote: post #46

Earlier quoted context omitted.

They aren't part of FDIC but they have SIPC insurance 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 cas…

Apparently, SIPC doesn't provide blanket coverage[1]. 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…

My understanding (which is limited, so someone please jump in if I'm wrong) is that SIPC does not protect against a decline in value of your assets.

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?

Re: Robinhood launches 3% checking account

#242

Post by ikeboy »

rexaliquid wrote: post #82
ikeboy wrote: post #26

Earlier quoted context omitted.

>With Robinhood, you’ll earn 3% on your money in both Checking & Savings, and interest compounds and is paid out daily. That’s an extra $240 a year for the average American household with $8,000 in the bank Does not compute. If it compounds daily then yearly total is above 3%

It's standard to talk in annualized interest rates to make simple comparisons between accounts. A daily interest rate of 0.008 % will compound up to just over 3 % of effective annual rate.

If the daily interest rate is 0.008 then the annualized rate is 2.92%, not 3%. The standard is to multiply by the number of periods, not to take compounding into the calculation.

Re: Robinhood launches 3% checking account

#243

Post by fady »

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…

Great summary @patio. I was just telling some friends about it..simple bank, offers 2% on checking with certain balances met, and I experienced similar to example above.

Re: Robinhood launches 3% checking account

#245

Post by kypro »

dixie_land wrote: post #163

I think folks are overthinking this. 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.

From what I understand Robinhood ban people who day trade.

Re: Robinhood launches 3% checking account

#246

Post by elliekelly »

consumer451 wrote: post #179
elliekelly wrote: post #84

Earlier quoted context omitted.

Oddly enough I suspect the result will be lobbying for stricter financial privacy regulations. Almost half of Robinhood's revenue is from selling data.[1] Big banks won't be able to compete on that front and most of the big players don't participate/make enough money on order flow sales that they'd miss it if it were prohibited. So the banks will do what they do best: lobby congress & regulators to legislate & regula…

From your link: > Almost all retail brokerages employ the practice

In options maybe, not in equities. Bank of America doesn't, Vanguard doesn't, none of the firms I've worked at do. Bernie Madoff basically invented the "strategy" and most firms aren't exactly looking to emulate him.

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.

Re: Robinhood launches 3% checking account

#247

Post by aczerepinski »

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…

Another thing to remember is they can change the rates later and many people will leave their money there anyway.

Source: I still have some money in a ~0% online savings account that I opened because it was 5% at the time.

Re: Robinhood launches 3% checking account

#248

Post by pbreit »

mikeryan wrote: post #224
Aunche wrote: post #215

Earlier quoted context omitted.

> 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?" 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 com…

Moviepass was bought by what is, primarily, an analytics firm. Though apparently so is Robinhood. https://seekingalpha.com/article/4205379-robinhood-making-mi...

This article implies for example that on a $10,000 trade that Robinhood would be compensated $0.80 (0.00008 per $1 of trade). That seems pretty modest.

Re: Robinhood launches 3% checking account

#250

Post by abuckenheimer »

DINKDINK wrote: post #178
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…

>their core strategy, which is spending what would otherwise be a marketing budget on keeping commissions at zero, making money on the other ways "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…

Yes HFT buys trade flow from robin hood because they make more money executing against it but that's not actually to the detriment of the people on the robin hood app. The main way HFT firms make money is by making a market, they offer to buy and sell stocks cheaper than anyone else and get paid by people crossing the spread and sometimes exchange fees. The reason robinhood trade flow is valuable to HFT firms Isn't because they are trading against "dumb" millennials but because they know millennials aren't likely to move the market playing around on their smartphone. HFT firms can collect a small rent sitting in between millenials trading with one another without the risk of being on the wrong side of a trade that materially moves the price of a stock.

Matt Levine does great write ups on this stuff, would highly recommend: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...

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