Robinhood launches 3% checking account • Hacker News Board

Re: Robinhood launches 3% checking account

#551

Post by trimbo » Fri, Dec 14, 2018, 12:39 AM UTC

woolvalley wrote: post #458

philip1209 wrote: post #332

I just spent 3 months in London, and it's crazy how Monzo seems to have taken the market. Almost everybody seems to be paying with a Monzo card, regardless of age. Asking around, I consistently heard that Monzo's competitors like Revolut are going to be a future case study in scaling before great product/market fit. I don't know how many people have Revolut accounts, but nobody seems to be using their cards in public…

In America, I don't think contactless matters that much currently. It's really a crap shoot if any specific retailer supports contactless, no major metro system that I know of support direct debit / credit contactless cards and no major bank or credit card company issues contactless cards. If you want to use contactless in america, you add the card to apple / google / samsung pay and use your phone for NFC payments.…

> no major bank or credit card company issues contactless cards

Citibank's Costco Visa card is contactless

Re: Robinhood launches 3% checking account

#552

Post by zrail » Fri, Dec 14, 2018, 12:39 AM UTC

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.

I believe AmEx started their savings accounts at the same time or very shortly after converting to a bank holding company during the 2008 crisis.

Re: Robinhood launches 3% checking account

#553

Post by ctdean » Fri, Dec 14, 2018, 12:41 AM UTC

For those interested in maximizing their interest rate on their cash holdings, I like https://www.maxmyinterest.com/ which has deals with many banks for high interest accounts. They make it very easy to move your money around to get the maximum ... uh ... return.

Re: Robinhood launches 3% checking account

#554

Post by p1esk » Fri, Dec 14, 2018, 12:48 AM UTC

pjc50 wrote: post #536

icedchai wrote: post #393

Earlier quoted context omitted.

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...

Nice way to humblebrag there.

Not to make you feel bad, but at $150k/year salary (average in SV) one should be able to save $100k within 5 years, with little impact on quality of life.

Re: Robinhood launches 3% checking account

#555

Post by ramraj07 » Fri, Dec 14, 2018, 12:54 AM UTC

zem wrote: post #533

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?" reminds me of the first time i interviewed at google, and one of the interviewers asked "if you could set up your own project and get a team to work on it, what would you do?". i answered that i would get a bunch of m…

So did you get the job?

Re: Robinhood launches 3% checking account

#556

Post by graedus » Fri, Dec 14, 2018, 1:03 AM UTC

dunpeal wrote: post #518

graedus wrote: post #489

Earlier quoted context omitted.

> 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 treasu…

> You also incur some inflation risk. Every dollar-denominated investment incurs inflation risk, including any sort of cash account like a dollar saving/checking account. > If you're investing in the treasuries via an ETF or via a broker, you are incurring additional counterparty risk. That counterparty risk is exactly what SIPC insures. > Investing in a 10 or 20 year bond is obviously different than having a checkin…

> Every dollar-denominated investment incurs inflation risk, including any sort of cash account like a dollar saving/checking account.

You're right, inflation risk isn't particularly relevant when comparing treasuries vs checking accounts or cash. Those are all exposed.

> For example, while they're growing, every withdrawal will be matched by a great amount of deposits. So they'll always have the cash in hand to satisfy withdrawals.

Ha, if we can just assume they'll have money pouring in faster than withdrawals, even when markets experience turmoil, there's very little to worry about! I don't know exactly how sure we can be about that - or at least, for how long.

> Absolutely. I would keep an emergency fund in an FDIC-insured bank account somewhere else.

Wise, and it sounds like we're on the same page. All I was arguing is that there is some risk here that's being glossed over by selling it as just-another-checking-account-except-you-get-more-money. Maybe small/unlikely risk, but you're not getting 3% for free. You can always just go buy some IEF or TLT or actual treasuries too.

Re: Robinhood launches 3% checking account

#557

Post by tomrod » Fri, Dec 14, 2018, 1:05 AM UTC

mikeash wrote: post #218

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…

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…

Their treasury approach is probably very risky.

Usually you want to build a tractor (recurring deposits to a reference rate) at the 7 or 10 year treasury, to ensure that you have a stable supply of available deposits, and a short term rate too to handle "hot money".

You make money on the spread.

I really don't see how they are funding their interest rate.

Re: Robinhood launches 3% checking account

#558

Post by tomrod » Fri, Dec 14, 2018, 1:06 AM UTC

rchaud wrote: post #358

deminature wrote: post #252

Earlier quoted context omitted.

Perhaps true, there's been an opening for a 'cool' millennial-oriented financial institution for a while now, so perhaps fewer customers will drop off than expected.

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.

Poor now, wealthier once they have brand loyalty.

Re: Robinhood launches 3% checking account

#559

Post by notyourday » Fri, Dec 14, 2018, 1:08 AM UTC

Scoundreller wrote: post #522

notyourday wrote: post #505

Earlier quoted context omitted.

Cash balances ensured by SIPC are safe to the coverage amount. 100% safe actually.

I’m sure they said that about Cyprus and Iceland too.

If the SPIC fails to cover the cash balances to the coverage limits, the financial world as we know it stopped existing.

This are cash balances, not money market funds or any other funds.

Re: Robinhood launches 3% checking account

#560

Post by hakfoo » Fri, Dec 14, 2018, 1:19 AM UTC

cbdumas wrote: post #504

philip1209 wrote: post #435

Earlier quoted context omitted.

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…

What incentive would I have to use a well branded debit card over a credit card that gives cash back?

I could see an effective marketing campaign making debit a social signal.

Being able to make a large purchase on debit means you can afford it right now-- just as dropping a stack of $100 notes would signal.

In contrast, paying with credit can be a pose-- you look like you can afford the $1000 purchase, but it hides the dark secret that you'll be paying for it well into the next decade.