Fintech startup Robinhood Financial LLC today announced that customers can sign up for access to a Checking & Savings product, which will be available as part of their free-trades brokerage services. The company makes money primarily from interest on customer cash balances.

Upon logging in to the app, customers are now greeted with an invitation to apply for the banking capabilities. The accounts pay a 3% annual interest rate, which is certainly a loss leader at the present time, and there are no fees for the customer.

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Robinhood says it can offer the high rate of interest due to splitting the revenue it receives from MasterCard whenever a debit card is used. Debit cards are offered in a partnership with Ohio-based Sutton Bank. When you sign up for Checking & Savings, you’re given the opportunity to pick one of the four available designs for your debit card. There is a limit on the number of debit cards that will be issued, for now. 

Paying the same interest rate on checking and savings is an unusual offer. And since Robinhood has no physical presence, they will rebate your ATM fees at partner banks for withdrawing and depositing cash. Their blog post claims that there is a network of over 75,000 ATMs, but there is no indication as yet regarding where they might be located.

Access to Checking & Savings will begin in January 2019, in order of a customer’s position on their waiting list. If you’re not yet a Robinhood customer, you can download the app and sign up for Checking & Savings.

Once you’ve chosen a card, you’re shown your place in the line, but you can move up the queue by inviting friends. You can pop up 10,000 spots for the first friend you’ve invited who joins the waiting list, and another 1,000 spots for each subsequent friend. Once your spot in line is at the top of the list, you’ll be notified to finalize your debit card design. 

Robinhood says they will post interest daily on cash balances.

If you’ve already got a Robinhood account, signing up for Checking & Savings is a no-brainer. Just do it. If you’re not yet a Robinhood customer, is this the enticement you need to open an account?

These bank accounts are insured by the Securities Investor Protection Corporation (SIPC), rather than the Federal Deposit Insurance Corporation (FDIC). The difference is technical as both insure their member firms for losses of $250,000 in cash per depositor. SIPC insurance also covers up to $250,000 in securities held by the firm. Since Robinhood now clears its own trades, having parted ways with Apex Clearing in November, it is a member of SIPC and its customer accounts are insured as such. 

However, in an article published by Bloomberg, Stephen Harbeck, president and CEO of SIPC disagrees with Robinhood’s assertion that these cash deposits can be treated as securities, and insured as such. He concludes, “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”

Most online brokers carry additional insurance in excess of what is covered by SIPC, but Robinhood does not. What that means is that if you somehow create a Robinhood account that has more than $250,000 combined in equity positions in cash, and Robinhood’s operations cease, you will lose the excess. Given what we have heard in the industry about Robinhood’s customers, they are frequent traders with relatively low account sizes, so this should not be a problem for the huge majority of the firm’s clientele. But given Harbeck’s statements, customers should think twice about the insurability of the cash held in their banking product..