Are the new Robinhood checking and savings products FDIC or SIPC insured?
Fintech investing platform Robinhood has introduced new checking and savings products that earn 3 percent, much more than what traditional banks offer and higher than online banks. Robinhood charges no fees and requires no minimum balance.
But there’s an important distinction: Robinhood’s checking and savings features are not traditional bank accounts. They are simply separate balances held within a Robinhood brokerage account. That means your funds are not FDIC-insurance, but instead protected by insurance from the Securities Investor Protection Corporation, or SIPC.
Here’s what you should know about the FDIC and SIPC.
What is the FDIC?
Created by Congress, the Federal Deposit Insurance Corporation is an independent agency that maintains stability and public confidence in the nation's banking system. The agency helps manage the wind down of failed banks. But more importantly for you, it insures customer deposits of failed banks up to $250,000 and oversees banks for safety, soundness and consumer protection.
What is the SIPC?
The SIPC was created by the Securities Investor Protection Act as a nonprofit membership corporation. It oversees the liquidation of broker-dealers if they go bankrupt or close because of financial trouble, and customer assets or cash are missing. The SIPC works to retrieve those assets and insures each customer up to $500,000 for securities and cash, including a $250,000 limit for cash.
Unlike the FDIC, the SIPC was not chartered to combat fraud. It’s also not an agency of the federal government, and it has no authority to investigate or regulate broker-dealers.
“It is important to understand that SIPC is not the securities world equivalent of the FDIC,” its website notes.
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Why did Robinhood go with SIPC?
Robinhood already was a broker-dealer member of the SIPC when it launched its savings and checking features, which are technically considered cash management accounts. Investment firms like Fidelity and Charles Schwab offer similar accounts.
"The insurance amount is the same and it allows us to offer this high rate,” said Baiju Bhatt, CEO and co-founder of Robinhood.
As a broker-dealer, the company can invest your cash in Treasurys. The return they get on those investments is enough – possibly more than enough – to cover the 3 percent they pay on your checking and savings balances in your brokerage account.
Robinhood does partner with a bank – Sutton Bank – as a sponsor for its debit card. It also may pursue its own charter in the future, Bhatt said, but there are no concrete plans for that now.
This article originally appeared on USA TODAY: Are the new Robinhood checking and savings products FDIC or SIPC insured?
