The financial sector grows more competitive by the day. Numerous up-and-coming firms are trying to etch their name in the history books. Robinhood is one of the companies that has been relatively successful so far. Despite various roadblocks, the company is now offering a cash management account.
The outlook for Robinhood wasn’t all that great, less than a year ago. Despite a valiant effort, the company did not launch its checking and savings account. If they had been successful, they would genuinely have been able to compete with banks. Particularly the 3% interest rate would have been a major selling point to draw in consumers quickly.
Regulators thought otherwise about this venture. The SIPC insurance part of the deal is not designed for savings accounts. It only works in conjunction with brokerage accounts. This is a key turning point for the company. Following an internal dialogue, the company began building a new product from scratch.
That product is the cash management account with a 2.05% interest rate. After hiring numerous individuals with the right expertise, this product can now be offered to the world.
This type of account is somewhat similar to a savings account. Customer money is swept from a brokerage account into multiple insured bank accounts. This allows Robinhood to insure accounts up to US$1.25 million. A big step up compared to other service providers offering similar functionality. Their insurance usually tops out at US$250,000.
Offering this service is not possible without the right partners. Robinhood joins forces with Citibank, U.S. Bank, Goldman Sachs, HSBCS, and various others. These partnerships are crucial to obtain FDIC insurance. It also allows Robinhood to avoid some of the regulatory red tape, as that part is taken care of by the companies they work with.
Customers will also obtain a Mastercard-branded debit card linked to the cash management account. This card can be used across 75,000 free ATMs nationwide. There will be no maintenance fees or account minimums.
Header image courtesy of Robinhood.