Through all of this I can't help but be reminded of the 2008 financial crisis and think "this is not going to end well." One part of that crisis was Icelandic Banks making a huge push for savings all over the UK and other parts of Europe ("IceSave") with the promise of better interest rates. When it all went belly up those savers realized these Icelandic banks were not quite the same thing as UK banks and Iceland refused to make depositors whole.<p>If Robinhood had offered this as a normal bank with FDIC insurance I would have been impressed. For now it just seems they're just moving a little bit higher up the risk/reward curve and trying to pretend the risk is the same.
Matt Levine comments on this today: <a href="https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-needed-some-pretend-traders" rel="nofollow">https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-n...</a><p>"There is a lot of confusion about what Robinhood’s thing is. Delightfully, it is called “Robinhood Checking & Savings,” apparently because calling it a “checking account” or a “savings account” would come too close to implying that it is a real bank account insured by the Federal Deposit Insurance Corp., while “checking & savings” is not a thing and so does not carry that implication. A magic ampersand!"
> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC<p>How the hell did this product get launched?
I don't understand the infatuation silicon valley has of Robinhood. Take almost every possible bad idea about personal finance and put them in an app, you get Robinhood. The business model is also suspect, I think there's a little more that hasn't been disclosed and I suspect the chase for cash started when the crypto currency fad started deflating in a hurry. I wonder if Robinhood is hiding something bigger under the covers.
Robinhood's offering is indistinguishable from a cash management account at a brokerage. Short-term deposits, check writing, debit card, interest bearing, etc.<p>Fidelity Investments pioneered this product, and now it's available from others like Schwab.<p>But at Fidelity, the cash management account is distinct from the brokerage account. While the brokerage account is insured by the SIPC, cash management funds are swept into FDIC-insured balances at actual banks.<p>Looks like Robinhood is gonna lose on this one.<p>Source: <a href="https://www.fidelity.com/cash-management/faqs-cash-management-account" rel="nofollow">https://www.fidelity.com/cash-management/faqs-cash-managemen...</a>
The whole "this can't end well" seems to come at every Robin Hood product announcement.<p>The somewhat recent addition of crypto is just depressing. They've integrated it with chat and live announcements of transactions, so you see people's names as they buy $1500 or $2500 worth of crypto as the whole market makes an inverted hockey stick nosedive to zero.<p>But the most absurd thing was seeing the HN comments yesterday as people were saying they were living up to their name of taking from the rich and giving to the poor. They're doing something worse--tricking non-rich people into thinking they'll get rich, while making a ton of money in the process.
It's a bit jaw dropping that they've launched this without talking to the SIPC to check that they agree with the statement that they provide FDIC-like protection on these accounts. I wonder what happened here…
Robinhood strikes me as a complete financial amateur-ish company, trying to attract millennials that don't know better by branding themselves as a cool tech company.<p>I have been using Ameritrade for a while and was curious about their no fee platform so gave it a quick go. The graphs have no legends associated in the app. The spreads seems not up-to-date with official quotes, etc. I went back to Ameritrade as fast as possible.<p>They are the "go fast and break things" of finance. There is a good chance that this will not end well.
Which leads to one of two scenarios:<p>1) They knew SIPC wouldn't cover it, but decided to lie about it anyway<p>2) They weren't competent enough to assess the risk that SIPC wouldn't cover it, but decided to launch anyway without contacting the SIPC<p>Regardless of which is the truth, I wouldn't trust my money with someone who does either. Might as well jump into a tried-and-true pyramid scheme like bitcoin!
Another example of startup hubris. Much like Uber and AirBnB got started (and in many cases, continue to operate) by flouting regulations, Robinhood thinks they're being innovative, when they'll really just hoping they can get big enough that they can buy or bully their way past the rules. At least long enough to get acquired.<p>It might work, but in this case, the people most likely to get screwed are the customers.
“I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC.<p>Not sure that leaves a lot of room for speculation - don’t sign up to use Robinhood as a savings account unless you are comfortable doing so without an FDIC level of guaranteed protection.
"“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”" -- If they are using the deposit to then behind the scenes purchase a security directly, why wouldn't that be protected??
Normally brokerage accounts fall under the SIPC and bank accounts under the FDIC.<p>Robinhood thinks their checking account should fall under the SIPC...so is their bank account not a bank account? What am I missing?
When I saw the original announcement I thought to myself, that's a high interest rate, but it sounds to good to be true; I probably ought to stay away as I'd rather play things safe with my money.
“Had they called us...”<p>ffs - they didn’t even do the most basic due diligence on this?<p>This is not just an indicator that this particular product might be in trouble, this is another order of magnitude kind of incompetence that makes me wonder why anyone would trust this company at all.<p>Wouldn’t you have to feel like the probability they end up with a major security issue, funding issue, executive behavior issue, etc., are all magnified by this knowledge?<p>I mean really, this is a <i>staggering</i> thing to read. I don’t think there could be hyperbole in this, it’s just incredible hubris-based incompetence.
Not to mention this: <a href="https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robinhood_options_fat_finger_glitchbug_thread/" rel="nofollow">https://old.reddit.com/r/wallstreetbets/comments/a5iwgh/robi...</a>
I had a bit of interest on this when I first read about it, but was a bit skeptical then... I wouldn't touch this at all now with no guarantee that the deposits are insured.
Here's their very brief unaudited financial statement.[1] This makes no sense for a financial institution. How can their liabilities be so low? Anything on deposit with them is a liability for them. This seems to say "all your assets are belong to us."<p>[1] <a href="https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal/RHS%20Statement%20of%20Financial%20Condition.pdf" rel="nofollow">https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...</a>
Assuming patio11’s comment[1] from yesterday is correct that this is a loss leader intended to target millennials with low value accounts rather than whales, maybe this is Robinhood’s intended outcome to make it less attractive to the customers they don’t want?<p>[1] <a href="https://news.ycombinator.com/item?id=18673426" rel="nofollow">https://news.ycombinator.com/item?id=18673426</a>
“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”<p>So it is insured, unless they can prove it's not for investing?
Is this how it works??<p>consumer securities purchases protected by sipc<p>robinhood bank checking format:<p>deposit: money -> account -> robinhood backend securities purchased<p>withdrawal: robinhood backend securities sold -> account -> money<p>Is this the argument made by robinhood? Perhaps if that is laid out clearly in contract, i.e. robinhood is granted agent status to purchase and sale securities on behalf of consumer
They've posted a response, for what it is worth: <a href="https://blog.robinhood.com/news/2018/12/14/a-letter-from-our-founders" rel="nofollow">https://blog.robinhood.com/news/2018/12/14/a-letter-from-our...</a><p>Not exactly confidence-inspiring, but we will see.
Makes this top comment from yesterday seem even more flippant and re-inforces the "trust us, we're smarter than you" mentality of certain regions of the country:<p><a href="https://news.ycombinator.com/item?id=18673426" rel="nofollow">https://news.ycombinator.com/item?id=18673426</a>
Irrespective of if it is protected or not, surely there is some other catch? Normally impossibly high interest rates are time-limited or balance-limited. I think somebody mentioned this is a variable rate so presumably this is a marketing ploy and they'll put it down to 1.5% in 6 months.
"Move fast and break things" does not work in the heavily regulated worlds of healthcare (e.g. Theranos) and finance (now Robinhood). FB and GOOG have massive lobbying operations for this very reason, as they don't want advertising to become like finance and healthcare.
Let's talk about conventional alternatives to this. I've heard good things about Ally bank's 2% saving account. Does anyone here use anything comparable? How about credit unions?
Their page [0] on the new product still mentions both SIPC and FDIC in numerous places. If I wasn't following this news, the clear implication I'd get is that my account was both FDIC and SIPC insured. This is really irresponsible of Robinhood.<p>[0] <a href="https://blog.robinhood.com/news/2018/12/13/introducing-robinhood-checking-amp-savings" rel="nofollow">https://blog.robinhood.com/news/2018/12/13/introducing-robin...</a>
They’ll give you 3% on savings by investing it in treasuries and pocketing the difference. The 20 year is now 3.03%<p>and interest rates are rising<p>Its the Theranos of finance!
For those of you looking for a great place to park your money, try this one: www.mysavingsdirect.com<p>it's now up to 2.4% for a online savings account, that is FDIC insured. i've been using them for 2 years now, and it's been awesome. As far as i know, 2.4% is the highest there is for online accounts. i'm surprised they don't top the list on nerdwallet.com
This is extremely concerning:<p>>> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC<p>As a result, I will not be signing up for Robinhood, that's for sure. I get the sense, It's not the place to park your money, if you're just trying to save up without investing.
I guess it depends on how you read the statue.<p>we protect (money with a brokerage firm) that is used for the purchase of securities<p>or<p>we protect money with a (brokerage firm that is used for the purchase of securities)<p>Unfortunately, due to the nature of law, there's no way to get an answer on this until it goes to the courts which will only happen if/when there's a problem.
I bet the idea is to use the deposits to fund margin lending to offer 3% interest rate. I remember the rate was like $10/m for $2000 margin which is 6% per year. If it’s funding margin lending would it count as empty brokerage account to get insured?
Behind the scenes, it is getting invested in a money market, tbills, or some other investment. So why wouldn't it be covered? Robinhood is only putting a checking account facade around this investment.
Initially the 3% can be paid by RobinHood investor money (they'll make it up on volume, like Pets.com did shipping 50lbs bags). But tomorrow? Maybe offer a x year guarantee
HN's value has really declined with the appearance of all the paywalls the last couple of years where there's no simple workaround. I've stopped clicking on WSJ, NYT, Bloomberg articles. Would be nice to just be able to filter them out of the view.
It's Bloomberg reporting so they probably got it completely backwards, or made it up, or misunderstood what was told to them. Not saying they're right or wrong, i'm saying Bloomberg is a very unreliable news source, especially in tech.