Robinhood revives checking with new debit card & 2% interest – TechCrunch

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Robinhood revives checking with new debit card & 2% interest Josh Constine @JoshConstine / 14 hours This time it actually has insurance. Zero-fee stock-trading app Robinhood is launching Cash Management, a new feature that earns users 2.05% APY interest on uninvested money in their account with the ability to spend it through a special Mastercard debit card. The waitlist opens today in the U.S. with the first users to be admitted soon. “If you have $5,000 in your account while you’re thinking about what to invest in, you’d have an extra $105 at the end of the year” thanks to Robinhood Cash Management’s interest, co-CEO Baiju Bhatt tells me.
The $7.6 billion-valuation startup first attempted something similar in December with Robinhood Checking , promising a stunningly tall 3% interest rate. But the product turned into a PR disaster when the Securities Investor Protection Corporation that was supposed to insure users’ funds declared Robinhood ineligible, with its CEO noting it had never agreed to cover checking accounts. That led Robinhood to shelve the feature , scrub its site of any mention of Checking and apologize.
Robinhood Cash Management’s debit cards, featuring the same design from the scrapped Checking launch
Now despite Bhatt claiming “Cash Management is a brand new program built from the ground up,” it will offer the same debit card design and network of 75,000 ATMs. It’s even using an identical promo image for its half-translucent green, black, white and American flag debit card designs. But each user’s funds will be covered by the Federal Deposit Insurance Corporation up to $1.25 million. To get around the $250,000 FDIC limit per bank, Robinhood is partnering with six banks that it will spread a user’s cash across as necessary to bundle up to that sum. Robinhood earns money by taking a chunk of the interchange fees from transactions on its debit card run in partnership with Sutton Bank, and from a fee paid by the six banks cash gets swept into.
To help it avoid further regulatory missteps, Robinhood yesterday added former SEC commissioner Dan Gallagher as its first independent board member. He joins the startup’s recently hired COO, CFO, chief compliance officer, VP of Risk & Compliance and VP of Legal & Regulatory to bring more supervision to Robinhood.
Robinhood co-founders and co-CEOs (from left): Baiju Bhatt and Vlad Tenev
The opt-in feature prevents users from missing out on earning interest if they keep money in their Robinhood account, and makes funds from stock sales quickly accessible via the debit card for spending or withdrawal. That convenience could give Robinhood an edge as its loses one if its key differentiators. Last week, its top incumbent competitors Charles Schwab, E*Trade and AmeriTrade all dropped their $4.95 to $6.95 fees on stock trades to match Robinhood’s free offering. That makes Cash Management and Robinhood Crypto even more critical to its continued growth. That’s necessary to justify the $7.6 billion valuation from its recent $323 million Series E raise led by DST Global that brings it to $860 million in total funding.
How Robinhood Cash Management works “We decided the best thing to do is giving people the peace of mind that their money is held at these banks, while trying to pay back the very best interest rates,” Bhatt tells me. [Disclosure: I know Robinhood’s co-founders from college.]
With Cash Management, once users deposit cash into the Robinhood accounts and opt into the program, they’re eligible to earn interest. Any balance on their account, including returns from sales of securities or cryptocurrencies, is swept into the FDIC-insured partner banks via Promontory’s debit suite system. Those banks include Wells Fargo, HSBC, Goldman Sachs, Citibank, U.S. Bank and Bank of Baroda. If one of those banks folds, the FDIC will make customers whole for up to $250,000, equaling $1.25 million across all six working with Robinhood. Users are able to opt out of specific banks.
There the cash earns a variable annual percentage yield (APY) that may fluctuate based on market factors like the Fed fund’s rate. Currently Robinhood offers a 2.05% APY, but refused to compare it to competitors. However, it ranks relatively high amongst popular banking options like these, according to Bankrate , especially given it has no minimum balance:
BMO Harris – 2.20% APY, $5,000 Minimum Balance BBVA – 2.15% APY, $10,000 Minimum Balance UFB Direct – 2.15% APY, $25,000 Minimum Balance Sallie Mae – 2.00% APY, No Minimum Balance State Farm Bank – 2.00% APY, No Minimum Balance TIAA Bank – 2.00% APY, $500 Minimum Balance Wells Fargo – 1.95% APY, $25,000 Minimum Balance Investors eAccess – 1.90% APY, No Minimum Balance Robinhood Cash Management will also compete directly with Wealthfront Cash that launched in February and now offers 2.07% APY interest, but lacks a debit card or ATMs. Betterment Checking & Savings does provide a Visa debit card, but its current APY is 1.79%.
Cash Management users...