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The Securities Investor Protection Corp. said a new checking account from Robinhood Financial LLC raises red flags and that the deposited funds may not be eligible for protection.
Robinhood, a no-fee stock trading app, rolled out its take on the traditional bank account Thursday, promising a 3 percent interest rate on deposits. The Checking & Savings service will be run through the firm’s brokerage arm rather than a bank, which would be insured by the Federal Deposit Insurance Corp. Robinhood said the service will be insured by the SIPC.
“I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC, said in an interview Friday. “Had they called us, I would have told them what I just told you in that I have serious concerns about this. This has gigantic ramifications for the banking industry.”
Robinhood was not immediately available for comment when contacted by email Friday.
Harbeck said that he first heard about Robinhood’s product Thursday afternoon and called the Securities and Exchange Commission to see if the government regulator agreed with his view that these funds will not be protected.
“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.”