Cash deposited in Robinhood’s 3% checking and savings isn’t insured, SIPC says

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Cash deposited in Robinhood’s new checking and savings product that was rolled out this week by the fintech investing platform is not insured by the Securities Investor Protection Corporation, the nonprofit membership corporation said Friday.

Robinhood made headlines on Thursday when it announced that the new products can earn 3 percent, much better than what traditional banks offer on checking and savings accounts. It’s also the highest yield among online banks and other fintechs known to provide generous deposit rates.

Robinhood’s checking and savings products are not traditional bank accounts. They are simply separate balances held within a Robinhood brokerage account.

The company said Thursday that the cash held in these balances was insured by the SIPC, rather than the FDIC, which protects bank deposits.

But on Friday the SIPC — which oversees the liquidation of broker-dealers if they go bankrupt or close because of financial trouble — said the protection it offered Robinhood customers was narrower in scope.

“SIPC protects cash that is deposited with a brokerage firm for one limited purpose … the purpose of purchasing securities,” according to a statement from SIPC President and CEO Stephen Harbeck. “Cash deposited for other reasons would not be protected,” he said in the statement. “SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose.”

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