Robinhood Takes Second Stab at Cash Management Account
Late last year, the commission-free stock trading platform Robinhood announced it would soon be offering a “Checking & Savings” account. These would complete with a debit card and a headline-worthy a 3% APY on savings. Unfortunately those plans were quickly rebuffed by the Securities Investor Protection Corporation, sending Robinhood back to the drawing board. Now the FinTech has revealed details about their renamed and revamped Cash Management account.
Not surprisingly the new Cash Management account bears some major differences from what was initially announced last November. Instead of a sky-high 3% APY, the upcoming offering will carry a 2.05% APY, although they note that rates are subject to change. That’s higher than some other online accounts such as SoFi Money (1.8%) and Marcus (1.9%) but is just a hair under the 2.07% currently offered by roboadvisor Wealthfront’s Cash account. Critically, deposits into Robinhood’s Cash Management account will be FDIC insured up to $1.25 million. This insinuates that the company is working with five partner banks to sweep funds.
One aspect that hasn’t changed is that account holders will still be able to choose from one of four debit card styles: green, white, black, and an American flag-inspired design. The card will still be on the MasterCard network and will give users access to 75,000 in-network ATMs. Users will also be able to add their cards to mobile wallets such as Apple Pay, Google Pay, and Samsung Pay. In terms of fees, Cash Management will have no account minimums or maintenance fees nor will debit cards incur foreign transaction fees.
To their credit, Robinhood owned up to their mistakes in a blog post announcing the new Cash Management account, writing of the December plans, ” We made mistakes with that announcement, which led us to hit the reset button and start over from scratch.” The post also makes clear that Cash Management is an additional feature added to your Robinhood brokerage account whereas the previous “Checking & Savings” FAQ states users would hold that account without investing.
The resurfacing of the Cash Management account comes at a disruptive time for Robinhood. Last week brokerage firm Charles Schwab announced it was taking a page from the FinTech, dropping its trade commissions to $0. This was followed by Ameritrade and E*Trade doing the same. In response to the news, a Robinhood spokesperson said, “We remain focused on offering intuitively designed products that reduce barriers to our financial system, including account minimums and commission fees.”
All things considered, the updated version of Robinhood’s Cash Management account likely won’t be as attractive as the original, problematic version. Furthermore, in rolling out the new account, the company is forced to rehash its mistakes from last year. As a result, to the extent that the timing of the announcement is in response to the recent brokerage shakeup, it seems unlikely that this will make too much of a dent in observer doubt. Still, for loyal Robinhood investors, the program could be a win — and it’s always good to be on the right side of regulators.