Robinhood announced yesterday that it would start offering checking and savings account to its customers. The account would have an great rate of 3% APY, which it way above the average and one of the best out there.
In the announcement, Robinhood said that as a member of the Securities Investor Protection Corporation, cash accounts will be protected up to $250,000. But that might not be the case, as we learn more information today.
In a statement emailed to MarketWatch Friday, Securities Investor Protection Corp. (SIPC) president and CEO Stephen Harbeck said that the agency only protects cash that is deposited with a brokerage firm for the purpose of purchasing securities. “Cash deposited for other reasons would not be protected,” Harbeck said. “SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose.”
Robinhood had not contacted the SIPC in advance of its announcement, Bloomberg first reported. Strange for a company of its size, that counts millions of customers and has been in business for a few years now.
On Robinhood’s website, it explains that users need to sign up for a Robinhood account to get the checking and savings accounts. But it says users do not need to invest to use the accounts, which likely makes the accounts ineligible for SIPC protection.
We should find out more information soon, once Robinhood clarifies its claims that the accounts are covered. That makes a huge difference for users, especially if we’re talking about large amounts being deposited in these new checking and savings accounts.