Robinhood to Offer New Cash Management Feature

Robinhood launches a new high-yield account feature.

On Tuesday, Robinhood announced in a blog post that it’s introducing a new cash management feature to allow its app users to earn interest on their uninvested money.

Users who sign up for the feature will have their uninvested cash moved to various bank accounts that pay 2.05% APY as of October 8, 2019. That’s about 20 times higher than the national average. But note that the interest rate may “go up or down over time at the banks’ discretion, due to factors including market conditions.” That’s according to the blog post.

The feature isn’t live yet, but interested users can join a waitlist to sign up for the new feature.

Trying to Get it Right

This announcement comes less than a year after Robinhood’s failed attempt to launch a new checking and savings account.

Last December, the startup said it would be offering fee-free checking and savings accounts with a 3% APY. The announcement drew extreme scrutiny … People grew skeptical as the company promised that the accounts would be SIPC-insured. That’s typically meant for brokerage accounts.

All that lead to Robinhood backtracking on its plans to launch those accounts. “We announced plans in December to launch a new product. We made mistakes with that announcement, which led us to hit the reset button and start over from scratch,” the company said in today’s blog post.

FDIC Insurance

With the new Cash Management feature, users’ uninvested cash will be FDIC-insured up to a total of $1.25 million.

While FDIC insurance typically only covers up to $250,000 per bank, Robinhood’s Cash Management features will deposit money across multiple banks. That can allow users to take advantage of greater coverage.

Debit Card

Robinhood is partnering with Sutton Bank to issue Mastercard debit cards for these new accounts. So account-holders can spend money directly from their brokerage accounts.

Cardholders will have access to 75,000 free in-network ATMs and won’t be charged foreign-transaction or maintenance fees. There are also no account minimums.

Instead, Robinhood plans to make money via fees from banks and debit card purchases.

Latest Funding Round

This summer, Robinhood completed its most recent round of funding … It raised $323 million for a $7.6 billion valuation. Robinhood said it will use the funding to “keep pursuing [its] mission of democratizing finance for all.”

In the past year, Robinhood has continued to diversify its offerings. This includes the launch of Clearing by Robinhood, a new version of Robinhood Gold, Robinhood Snacks, and the introduction of multi-leg options strategies. The company also added new members to its management team.

Growing Competition

Robinhood faces increasing competition … Major brokers like Charles Schwab, Interactive Brokers, TD Ameritrade, and more have announced commission-free trading. That was once Robinhood’s biggest selling point.

As competition grows, Robinhood has to continue to diversify its revenue streams and products to remain competitive in the industry.

In an interview with CNBC, CEO Baiju Bhatt said, “We have a belief that if we if we stay focused on our customers, we’ll continue to build great products that they love and our business will continue to grow.”

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