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Robinhood launches 3% checking account

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Re: Robinhood launches 3% checking account

#481

Post by FlimGrimoire »

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…

  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?"
Ah yes, because as 2000, 2008, and 2019 have shown us, financial firms are infallible when it comes to maths and economics.

Re: Robinhood launches 3% checking account

#482

Post by JamesBarney »

FlimGrimoire wrote: post #481
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…

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?" Ah yes, because as 2000, 2008, and 2019 have shown us, financial firms are infallible when it comes to maths and economics.

2000/2008 didn't happen because someone did basic accounting math incorrectly.

Re: Robinhood launches 3% checking account

#483

Post by yclept »

icedchai wrote: post #393
mikeash wrote: post #230

Earlier quoted context omitted.

Right, but that incentive is only substantial if you’re going to park a lot of money there, which is exactly the sort of customer they don’t want according to the comment I replied to.

I'll move my ~$100K emergency fund into there just to get free money. And move it out somewhere else when the rates change. Over the years I've moved accounts between Dollar Savings, Emigrant, Orange, Ally, and probably 2 or 3 others...

Would you really move your emergency funds into a less secure more likely problematic service though?

Re: Robinhood launches 3% checking account

#484

Post by jimbokun »

theturtletalks wrote: post #385
deminature wrote: post #362

Earlier quoted context omitted.

Millennials may not have money now, but they'll accumulate more wealth as they get older. If you can convert them now, the friction to changing again is high enough that you'll probably still have them when they're worth something.

Yep that's a good play, but their page says that the 3% can change depending on the market. So if that percent changes a few months after you create an account, I would bet many people would leave cause of the bait and switch.

And many won't leave, because many of us are lazy.

Re: Robinhood launches 3% checking account

#485

Post by rdm_blackhole »

nawitus wrote: post #464
free652 wrote: post #326

Earlier quoted context omitted.

Europe doesn't have credit cards, it's all debit cards. And I see a US system much more advantageous than in Europe. In many European countries cards aren't as widely accepted as in US.

What? Generalizations about Europe always seem to fail. Credit cards are widely used in Europe. In some European countries cash is starting be used rarely and payment is mostly done with a card or a phone. 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 li…

I can confirm that credit cards are not used by a majority of people in France. Debit cards are the norm.

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.

Re: Robinhood launches 3% checking account

#486

Post by rchaud »

deminature wrote: post #362
rchaud wrote: post #358

Earlier quoted context omitted.

Seems like a weak market to go after, given that people likely to respond to a "cool" financial services brand may be a poorer demographic that maybe doesn't have any prior experience with "legacy" financial services providers. So just because they create accounts @3% doesn't mean they'll also open trading accounts.

Millennials may not have money now, but they'll accumulate more wealth as they get older. If you can convert them now, the friction to changing again is high enough that you'll probably still have them when they're worth something.

That's a good point. A friend of mine in medical school told me that banks are itching to give loans to broke med school students because they know building the relationship now is going to pay dividends when the now-broke student becomes a doctor looking to buy a new car or new house.

Re: Robinhood launches 3% checking account

#487

Post by coryfklein »

dangrossman wrote: post #403
coryfklein wrote: post #375

If you're looking for a good liquid place to park cash and you don't have a Robinhood invite, check out Dollar Savings Direct. They currently pay 1.8% interest on their savings accounts.

Synchrony Bank, Goldman Sachs Bank, Barclays Bank, HSBC Direct pay 2.05%. 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, an…

Wow, it's crazy how sometimes search queries have a "magic" quality to them. I spent a good 1-2 hours trying to find the place with the best rate when I discovered Dollar Savings Direct, but never came across a list like the one you find when searching for "high yield savings".

Re: Robinhood launches 3% checking account

#488

Post by kevindong »

philip1209 wrote: post #435
kevindong wrote: post #341

Earlier quoted context omitted.

> My benchmark is Charles Schwab Bank, which offers free ATM 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. Why do you say it's a bad product? I use Schwab as my main account and it works great for me.

I love Schwab's checking account product because it's highly functional. But, I don't think that it has mass-market appeal. It appeals to a rational buyer, not an emotional one. 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…

> I love Schwab's checking account product because it's highly functional. But, I don't think that it has mass-market appeal. It appeals to a rational buyer, not an emotional one.

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.

Re: Robinhood launches 3% checking account

#489

Post by graedus »

dunpeal wrote: post #365
graedus wrote: post #340

Earlier quoted context omitted.

> When the return is higher, the risk must have gone up too, somehow. 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 goi…

> You are never getting returns for free 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 tr…

> 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.

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.

Re: Robinhood launches 3% checking account

#490

Post by my_usernam3 »

clintonb wrote: post #392
RobAtticus wrote: post #221

Earlier quoted context omitted.

Perhaps true in the past, but AmEx has recently (I think?) started offering bank accounts. Their high-yield savings account is 2%, which is pretty comparable to Ally, etc. https://www.americanexpress.com/personalsavings/high-yield-s...

American Express Bank has been around for at least 2-3 years.

In the world of banking, thats "started" to me.
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