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After trying at a similar endeavor and failing in December last year, Robinhood has announced a feature that promises users returns on their uninvested funds. The new feature is now also fully insured with over $1 million.
Robinhood, the financial services and stock-trading company based in California, has just announced its launch of a new feature called Cash Management. According to the announcement, the new feature which will come with a Mastercard debit card will allow its users to earn an annual percentage yield (APY) of 2.05% on all unused funds left in brokerage accounts. Users can now visit Robinhood and join a growing waitlist, to take advantage of Cash Management and reserve a debit card.
In December last year, the company tried to offer a similar feature. Just like Cash Management, it was announced to have no commission fees but with a higher interest rate of 3%. Called Robinhood Checking, the feature ran into problems very shortly after it was announced, when the Securities Investor Protection Corp. (SIPC), the organization supposedly responsible for insuring deposited funds, announced differently.
According to the SIPC, it only protects funds that are used strictly for the purchase of securities, and nothing else. The company eventually had to abandon Robinhood Checking.
Now, the company has taken measures to make sure it doesn’t run afoul of regulatory expectations and has announced that Dan Gallagher, the former commissioner of the Securities and Exchange Commission (SEC), has joined the firm as its very first independent board member.
Cash Management is also similar to Robinhood Checking because it also offers a debit card with pretty much the same design, along with as many as 75,000 ATMs that its Mastercard debit card will be supported by, without having to pay any fees.
However, the new feature will be fully insured by a $1.25 million coverage, from the Federal Deposit Insurance Corporation. Because the Corporation has a $250,000 upper limit for each bank, Robinhood has collaborated with six different banks and has shared the funds across them all, to stay within the FDIC’s regulation. The banks include Citibank, Goldman Sachs, HSBC, Wells Fargo, Bank of Baroda and U.S Bank as well.
Speaking to Tech Crunch’s Josh Constine, co-founder Baiju Bhatt has suggested that the feature is a great way to put people’s minds at ease with their money in the bank, while they earn at the same time.
“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.”
Interested customers who do not already have a Robinhood brokerage account, must first get one before they can use Cash Management. For users who already use Robinhood, they can join the waitlist immediately as available on the company’s website, and then will be able to access the feature from their brokerage account, a little later. As soon as users are off the waitlist, they may then fund their accounts either through an electronic transfer or via a direct deposit.
Back in August, Robinhood International received official approval from the Financial Conduct Authority (FCA), to begin brokerage operations in the U.K. With about 6 million users and growing, the company now has a $7.6 billion valuation after it received $323 million from its recent Series E funding round as led by DST Global. In total, Robinhood has received $860 million in funding.