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Robinhood launches 3% checking account

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Re: Robinhood launches 3% checking account

#421

Post by zeroname »

snowwrestler wrote: post #189
zeroname wrote: post #144

Earlier quoted context omitted.

I don't think understand that correctly. There's no such thing as a SIPC-protected checking account that holds securities. A checking account holds cash. 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 secur…

> 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."

Okay, it seems like you don't understand the very basics.

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.

Re: Robinhood launches 3% checking account

#422

Post by soared »

elliekelly wrote: post #266
soared wrote: post #234

Earlier quoted context omitted.

All your credit card companies do the same.

Not like this. American Express might have paid marketing "partnerships" but Robinhood is taking it the next level. 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 curio…

I mean I guess if you opt out its different, but visa/mastercard etc by default sell all your data. Here is just a tiny amount of the data I can buy/use.

https://imgur.com/a/VCUoIRW

Re: Robinhood launches 3% checking account

#423

Post by jldugger »

Benji_San wrote: post #290
jldugger wrote: post #239

Earlier quoted context omitted.

Why have two checking accounts?

Why not? It doesn't cost anything extra except some time for the initial setup and you get a guaranteed short term return on your parked money.

But why not just close the old account? You'll get that short term return for all your checking float in that case.

Re: Robinhood launches 3% checking account

#424

Post by xivzgrev »

I love how this is breaking the mold, paying 3% on checking.

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.

Re: Robinhood launches 3% checking account

#425

Post by nodesocket »

TuringNYC wrote: post #415
mikeash wrote: post #218

Earlier quoted context omitted.

Why would they expect this account to be used as a high-velocity, low-balance account rather than a park-your-savings account, given the rate? 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 the…

No one knows what Robinhood will do, but no bank can promise a perpetual 3% rate. The rate is probably a teaser. Even if it is perpetual, it may be "on the first $10,000, with a minuscule rate on larger sums...something that allows them to advertise 3% but offer much less on larger sums.

Their FAQ states no caps, though it can vary depending on what the fed does with rates.

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.

Re: Robinhood launches 3% checking account

#426

Post by mturmon »

longerthoughts wrote: post #353
mturmon wrote: post #209

Earlier quoted context omitted.

Not so! One can indeed defend the claim that poor mathematical modeling of the statistical properties of collateralized debt obligations (CDOs) was the underlying cause of the bottom falling out of that market. 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 the…

Your point directly contradicts the conclusions of the paper you linked. 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 C…

The paper is pointing at one aspect of the modeling (estimating the covariances of the copula), versus another aspect (the copula concept itself). That’s a detail that was very important to the author of the paper, but not to my point.

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.

Re: Robinhood launches 3% checking account

#427

Post by cercatrova »

jorams wrote: post #308
JoBrad wrote: post #253

Earlier quoted context omitted.

I’m sure a lot of people might start out that way. But if you get free money for parking your cash there, why not use that money to dabble in some trading? Seems like there is little downside for the company, and potential for upside for the consumer. Pretty good acquisition strategy, in my opinion.

Alternatively: If you get free money for parking your cash there, why risk that money by trading? 3% guaranteed earnings is a very good deal without any downside, while the risks involved with trading that money are substantial.

Most people won't think like that though, especially the millennial target customer who has the time to gamble money, rather than necessarily needing to save for retirement. Currently Robinhood takes three days to transfer funds, so reducing that friction, when customers make impulse decisions when they see that the stock is going up, is paramount. Why wait a few days when the money is already there? This is the benefit of vertical integration.

Re: Robinhood launches 3% checking account

#428

Post by therealdrag0 »

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.

Ally has 2% now. I've been very happy with them.

Re: Robinhood launches 3% checking account

#429

Post by thisone »

nimish wrote: post #190
thisone wrote: post #48

Earlier quoted context omitted.

When banks in the UK have offered 3% (Tesco bank did this) it was for the first 12 months and the number of new accounts was eventually limited. 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

3% in the UK on GBP is different from 3% in the US on USD. You can't really compare them.

3% is 3%. 3% on £100 = £3. 3% on $100 = $3.

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?

Re: Robinhood launches 3% checking account

#430

Post by klochner »

ericliuche wrote: post #29

They are offering this as a brokerage and not a bank so the accounts are not FDIC insured but SIPC insured instead https://support.robinhood.com/hc/en-us/articles/360001469903

    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://www.barrons.com/articles/robinhood-app-is-offering-a...
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