Is It Safe to Deposit Money into Robinhood's New Checkings and Savings Accounts?
Robinhood recently introduced checkings and savings accounts, but concerns are mounting about their safety and insurance coverage. This article uncovers the truth behind these new financial products and analyzes the risks involved.
What's the Concern?
Robinhood, a popular trading app, has launched new checkings and savings accounts. However, it is crucial to question the safety of these accounts as there are several uncertainties surrounding the insurance coverage.
SIPC Insurance and the Controversy
Robinhood claims that all accounts are backed by SIPC (Securities Investor Protection Corporation) insurance, which traditionally protects money in brokerage accounts. However, recent correspondences suggest that this may not be the case.
A representative from SIPC sent an email to Barron’s expressing doubt about the idea that SIPC would cover checking or savings accounts. Stephen P. Harbeck, the president and CEO of SIPC, stated, “SIPC protects cash that is deposited with a brokerage firm for one limited purpose of purchasing securities. Cash deposited for other reasons would not be protected.”
Robinhood's Perspective
Robinhood argues that their checking and savings products are technically part of a brokerage account and would therefore be protected by SIPC, similar to other brokerage assets. Customers can trade stocks and other assets using the money in these accounts.
Yet, the discrepancy between the SIPC's stance and Robinhood's claims is incredibly concerning. SIPC is considering the possibility of covering all deposits meant for purchasing stocks, but they are currently stating the opposite.
Robinhood acknowledges this issue but seems unbothered. According to their statement, they plan to explain the difference between SIPC and conventional FDIC (Federal Deposit Insurance Corporation) insurance to their customers through marketing materials. However, their approach lacks depth and transparency, as evidenced by this quote:
“We don’t think that's something that a lot of customers are going to be scrutinizing the details of or will really see value in there being the difference between the two. The product we’re offering has the same insurance amount which is a quarter of a million dollars.”
This is a troubling perspective, given that many individuals are indeed asking for clarification on this specific matter and demand a clearer and more detailed response.
Future Developments
The SIPC has not provided a definitive answer. In a statement released today, they clarified their position, which suggests no change in their current stance.
Robinhood may ultimately find a solution by making a deal with the FDIC (Federal Deposit Insurance Corporation). However, as no customer can currently deposit money, there is no immediate risk at this moment. Yet, this is a critical issue that requires a more robust explanation from Robinhood.
In the final analysis, the SIPC may eventually rule this approach as acceptable, or Robinhood might broker a deal with the FDIC. Since users can only sign up for an email waitlist for these accounts, the immediate risk is minimal. However, the fundamental question of safety needs a better and clearer answer.
Key Takeaways:
The SIPC does not insure checking or savings accounts, specifically in the case of Robinhood's new accounts. Robinhood's claims of SIPC coverage for these accounts are uncertain. Robinhood is planning to clarify the differences between SIPC and FDIC insurance, but the approach seems inadequate. Future developments may involve a deal with the FDIC.Conclusion
Until there is a definitive ruling or a more transparent explanation from Robinhood, users should proceed with caution when considering these new checkings and savings accounts. Investigating and understanding the full extent of the insurance coverage is essential before making any decisions.