So going through those threads—basically everyone wants to know what the catch is. Checking and Savings account rates at 3% is a whole percentage higher than even Ally will offer. At 3 % you’re beating inflation and then some.
Some thoughts on “the catch.”
SIPC insured, not FDIC insured
Federal Deposit Insurance Corporation is an independent agency insures depositors. If a bank has your money and fails. the FDIC insures you get up $250,000 of that money.
The SIPC on the other hand is a non-profit member corporation created by the Securities Investor Protection Act. It insures each customer up to $500,000 for securities and cash with a $250,000 limit for cash.
This means that Robinhood can put some of that money in treasuries and get a larger return. However, if Robinhood goes out of business, you are insured for the cost of the assets, not the money you’ve put in.
Robinhood may be gearing up for an IPO and want to show a strong user base. Checking and savings accounts don’t really make banks money—they get customers in the door to their other banking and investment products.
Robinhood is probably banking that this is a short-term holding account and many will be tempted to spend it purchasing stocks.
Credit card fees
That snazzy looking card you posted may have some of the answers. It looks like Robinhood has teamed up with MasterCard. Whenever a customer uses that debit card, the merchant will be charged a small fee. Perhaps, Robinhood thinks that this fee will help cover the expenses?
TBH, I’m more curious what this does to other players in the space. Wonder if Ally will respond?