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3% on checking sounds too good to be true. What's the catch?

For example, I didn't see anything about how funds are insured. If Robinhood were to somehow lose depositor funds, what recourse would account holders have?



It said that they invest your money into US treasuries. I assume since they are doing this instead of providing mortgage/loan services and having to employ an army of loan and compliance officers, this would theoretically make it possible to profit based on the long term treasury rate since it's just a buy and hold strategy and doesn't really require much overhead (comparatively) even when being done on a large scale.

The 30 year treasury rate is barely over 3% so I'm honestly not sure how they can make any sort of real money on this. I would expect the rate to change over time, especially if the 30 year dips under 3%. But it seems theoretically possible given the absence of brick-and-mortar spaces and all the overhead and costs that comes along with that.

EDIT - I forgot about the interchange fee sharing when you use the debit card. So that is where the profit would be. Seems like the goal is to target roughly the 30 year treasury rate and pass that through to the customer and they can breakeven. And the profit comes from actually using the debit card. Not to mention potentially selling that user data.


agree - but don't think they are going out that far on the curve, probably more like 6m treasuries (2.5%) + interchange fees as you mentioned...


Like all "tech" companies - they're selling your data. They already do it in their brokerage accounts. Now imagine the value of knowing what you spend every single dollar on, how often you're shopping at a competitor, what time of day you're most likely to swipe your card, etc.

They're SIPC insured (like a brokerge account) instead of FDIC insured (like a bank account) which is a subtle difference and ever-so-slightly riskier for the consumer but not terribly different.[1] The biggest/riskiest difference is that the insurance here is provided by a group-funded non-profit as opposed to the federal government.

But mostly it's about making up the difference with your data.

[1]https://www.schwabmoneywise.com/public/moneywise/essentials/...


While that's a possible money source for sure, Robinhood currently makes their profit on their brokerage accounts mostly by earning interest on deposited cash.

Banks make boatloads of money without needing to sell data, but rather selling loans. Not even needing to loan money, offering 3% interest, with how high treasury notes are these days, is _really_ easy for banks to do. The problem is that generally banks also have really high overhead, something Robinhood doesn't.


> Now imagine the value of knowing what you spend every single dollar on, how often you're shopping at a competitor, what time of day you're most likely to swipe your card, etc.

I'm curious what the harm here is. Are they going to blackmail people who shop at their competitors?


It's basically Facebook on steroids in terms of how much information they're going to have on their users. And, unlike Facebook, this "free" platform self-selects only the most valuable users (for marketing purposes): those with disposable income.


With 3% interest, that would be where I park money. What information will they get from me other than I dumped $ in and it's sitting there?


Why have two checking accounts?


Because one is from a bank with a high interest rate but a shitty privacy policy and the other is from a bank with a better privacy policy but a lower interest rate.


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.


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 curiously absent from their "disclosures" webpage) you'll see they have an affiliate "Chronos Research."

[1]https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...


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


> For example, I didn't see anything about how funds are insured.

It is listed directly on their Checking & Savings page, it has it's own featured section, you only have to scroll twice to see it.

> Every Robinhood account is SIPC insured up to $250,000 in cash and protected by modern encryption so you can rest easy and save confidently.


The catch is that when Robinhood goes bust because of the risky investments they're making to get you that 3% yield, and they take the SIPC down with it, then the government bails out the SIPC and Robinhood you lose purchasing power through currency devaluation.




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