by Matt Frankel, CFP | Updated July 17, 2021 - First published on Dec. 16, 2020
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The popular stock trading app now offers a place for users' cash too.
Robinhood recently made its Cash Management feature available to customers to make it easy for them to access their uninvested cash. Approximately 13 million people currently use the platform to trade stocks, and it's fair to say that the Cash Management feature could become a popular checking account alternative.
In a nutshell, it combines some of the best aspects of checking accounts and interest-bearing savings accounts. To be perfectly clear, this isn't a separate Robinhood account. It uses the uninvested cash in Robinhood users' accounts.
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Here's a rundown of the main features of Robinhood Cash Management
Direct deposit: Robinhood users can have their paycheck directly deposited into their Cash Management balance. And unlike some other bank accounts, Robinhood does not charge monthly maintenance fees, transfer fees, or foreign transaction fees.
Bill pay: Users can pay their bills through Robinhood's app, using their Cash Management balance. They can also send check payments through the platform.
Interest: Robinhood will pay interest on users' uninvested cash. As of December 2020, the APY is set at 0.30%, but this can vary over time. It isn't quite as much as you could earn with some of the best online savings accounts, but it's higher than several high-interest checking accounts. Plus, the Cash Management feature integrates with your brokerage account and has more functionality than most savings accounts, which still makes it a solid option.
Free ATMs: Robinhood users can use a debit card (issued by Sutton Bank) to access their uninvested cash. It can be used to withdraw money for free at more than 75,000 ATMs across the United States.
High FDIC insurance: Robinhood has partnered with seven different banks, including Goldman Sachs and Wells Fargo, to hold customers' uninvested cash. Balances in Cash Management are FDIC insured to a maximum of $250,000 per affiliated bank. That means customers' Cash Management balances could be covered to as much as $1.25 million.
Robinhood isn't necessarily a perfect place for all its users to put their cash. For one thing, there are no physical Robinhood branch locations. If you occasionally need to go to a physical banking branch -- say, to deposit physical cash or obtain a certified check -- you may still need to maintain a bank account at a branch-based banking institution.
In addition, while an APY of 0.30% is certainly better than you're likely to get from most traditional banks, it isn't quite as much as most online savings accounts pay. The APYs in our best online savings accounts list range from 0.45% to 1.00%.
Despite these drawbacks, the perks could still make it an appealing place for Robinhood investors to keep their cash. The all-in-one nature of the account can be especially attractive. For example, if you sell stock to get the money you need to pay bills, you'd normally then need to transfer it from a brokerage to a checking account. Or, if you decide you want to buy stock (and aren't a Robinhood user), you'd probably first have to transfer money to your brokerage account. Using Robinhood for your everyday banking eliminates these steps.
The bottom line is that Robinhood's Cash Management feature not only adds more functionality to the platform but helps simplify its users' financial lives. And if the conveniences and other features outweigh the drawbacks, Robinhood users could certainly make their trading accounts their primary bank accounts.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 8x the national average savings account rate.
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