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Robinhood launches 3% checking account

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Re: Robinhood launches 3% checking account

#521

Post by solaxun »

alexhutcheson wrote: post #507
solaxun wrote: post #298

Earlier quoted context omitted.

Why does everyone keep referring to checking accounts as "loss leaders"? They are more like "income leaders" - the banks are funding themselves at basically 0% and then earning the spread on whatever they invest in....

The banks incur lots of operational expenses processing transactions, paying for an ATM network, handling customer support calls, dealing with fraud, etc.

That is nothing compared to interest expense on CD's or other interest bearing accounts. Checking accounts are one of the most attractive sources of funding for banks (notwithstanding maturity mismatch).

Re: Robinhood launches 3% checking account

#522

Post by Scoundreller »

notyourday wrote: post #505
pascalxus wrote: post #439

Earlier quoted context omitted.

here the catch, I believe: 1. it's ensured by SIPC, not FDIC, so it's not as safe. 2. They're going to lower that 3% rate down whatever all the other banks are at (2%) in a couple of years, unless the interest rates catch up to their higher rate, which they are expected to do in about 2 to 3 years: at that time, 3% will be roughly the norm for the highest interest savings accounts. I remember the days when Citibank w…

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.

Re: Robinhood launches 3% checking account

#523

Post by jonknee »

pascalxus wrote: post #439
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…

here the catch, I believe: 1. it's ensured by SIPC, not FDIC, so it's not as safe. 2. They're going to lower that 3% rate down whatever all the other banks are at (2%) in a couple of years, unless the interest rates catch up to their higher rate, which they are expected to do in about 2 to 3 years: at that time, 3% will be roughly the norm for the highest interest savings accounts. I remember the days when Citibank w…

> I remember the days when Citibank would give out 4% interest about a decade ago. now of course, it's about 0%. It's just classic bait and switch.

That's not a bait in switch, interest rates plummeted globally to the point a lot of people were happy to even get 0%!

Re: Robinhood launches 3% checking account

#524

Post by buttcoinslol »

sireat wrote: post #431
TuringNYC wrote: post #415

Earlier quoted context omitted.

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.

Kind of funny but I remember 3% rate being kind of normal for a checking account in the early 90s. Of course inflation and Fed was higher back then too. What I don't understand is those people who willingly park their money in CDs at under 1% and the banks proudly advertising these rates. This era of seemingly permanent low(or even negative) rates just somehow seem unnatural. What happened to banker's 6-3-3 rule? "Le…

> What happened to banker's 6-3-3 rule? "Lend at 6%, borrow at 3% and go golfing at 3:00PM"

The Bretton Woods agreement ended.

Re: Robinhood launches 3% checking account

#525

Post by [deleted] »

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…

[deleted]

Re: Robinhood launches 3% checking account

#526

Post by deathanatos »

dzhiurgis wrote: post #498
woolvalley wrote: post #458

Earlier quoted context omitted.

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.…

Cashier was shocked when I used my contactless card in middle of SF. She nearly screamed "WHAT DID YOU JUST DO???". Meanwhile even in smallest villages of Europe no one bats an eye anymore. America is bizarre!

I just flew through 4 different airports in the last week, and every single one of them, the payment device had a chip reader, but all of them were blocked with a piece of cardstock instructing the person to swipe.

Why? (I think they're all run by the same company, HMSHost, who, AFAICT as a traveler, has a monopoly on airport food.)

Re: Robinhood launches 3% checking account

#527

Post by throwawaymath »

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…

That's an extremely poor article. Anyone can throw a hot take on SeekingAlpha; that doesn't mean their take is worth anything.

1. I don't know why the title mentions "millenial" customers in particular, because every brokerage does this across all demographics,

2. This activity is not "selling out" customers. If you believe that customers are "suckers" because their order flow is sold to high frequency traders, you have a very fundamental misconception about high frequency trading and its role in market making,

3. There is no codified definition of, or law protecting, "financial privacy" in the sense of order flow. This data isn't connected to you as an individual, just as you can't see which individuals or companies are placing bids and asks in the order book just because you can see the amounts and prices. All trades in the market are publicly reported regardless of whether or not your order flow is sold.

It never ceases to amaze me how the term "high frequency trading" can compel people to pontificate about things they clearly don't understand. You'd think we'd have collectively moved on from the Flash Boys misconceptions by now. Yet here we are, with an article talking about high frequency traders as some kind of financial boogeyman in 2018.

Re: Robinhood launches 3% checking account

#529

Post by jonknee »

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.

> No one knows what Robinhood will do, but no bank can promise a perpetual 3% rate.

It's not too crazy, rates have gone up a ton without most bank accounts adjusting from being near 0%. The 10-year is currently just under 3% with the whole curve being really flat and lots of online banks offer over 2%. I currently get 2.05% with my Marcus account and Goldman Sachs isn't exactly known for giving things away (and with 3 month t-bills paying 2.41% they certainly aren't giving anything away!).

Re: Robinhood launches 3% checking account

#530

Post by gtowey »

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.

I would argue that they happened exactly because the brokers who made up those financial institutions understood the math perfectly well: They make huge commissions on CDO and other deals. They sell the bad debt to some other shmuck and walk away with cash in their pocket and someone else holding the risk.

That's why it keeps happening. They get rich and get away with it every time.

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