Robinhood is a popular investment app that allows users to trade stocks, ETFs, options, and cryptocurrencies commission-free.
In addition, they offer various cash management products through partner banks.
One question that potential users may have is whether their funds on the platform are FDIC insured.
First, it's important to understand that Robinhood is not a bank.
Instead, it partners with a number of banks to provide services such as the brokerage cash sweep program and the Robinhood spending account.
The spending account is offered through Robinhood Money, LLC, which is a licensed money transmitter - but not a bank.
However, the funds in your Robinhood spending account are eligible for FDIC insurance up to a total maximum of $250,000. This means that if the bank holding your funds were to fail, the FDIC would insure your funds up to that amount.
It's worth noting that the Robinhood Cash Card, which is a prepaid debit card issued by Sutton Bank, is not FDIC insured.
This is because it's a prepaid card and not a bank account.
However, the funds in your spending account that are linked to the card are FDIC insured.
In addition to the spending account, Robinhood also offers the brokerage cash sweep program.
This program sweeps uninvested cash from your brokerage account to program banks, where it becomes eligible for FDIC insurance up to $1.5 million or $250,000 per program bank, inclusive of any other deposits you may already hold at the bank in the same ownership capacity.
It's important to note that funds swept to program banks are no longer held in your brokerage account and are not protected by SIPC, but they are eligible for FDIC insurance.
SIPC insurance is in place for securities such as stocks and bonds up to $500,000, as well as cash held for the purpose of investing up to $250,000.
Cryptocurrencies held in Robinhood Crypto, LLC accounts are not FDIC insured nor SIPC protected.
In conclusion, while Robinhood is not a bank and does not offer bank accounts, the funds in your Robinhood spending account and those swept to program banks through the brokerage cash sweep program are FDIC insured up to certain limits.
It's important to understand the limitations of FDIC insurance and to consider the risks associated with investing before making any decisions.
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