Robinhood is known as the app that pioneered commission-free trading.
Now, countless other brokerages have followed suit and done away with trading commissions.
Rightfully so, many investors are skeptical of whether or not Robinhood is safe to invest with based on the fact that they do not charge fees to use the platform.
Robinhood does make money, but it isn't from trading commissions or management fees.
So, is Robinhood safe to invest with? Here is the verdict.
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When determining if a brokerage platform is safe, the two things you should look at primarily is if this brokerage is a member of SIPC as well as the app security itself.
Robinhood is a member of SIPC, so you are fully SIPC insured.
Through the SIPC, you have coverage for up to $500,000 worth of securities. Cash held within the brokerage account for the purpose of investing is covered up to $250,000 as well.
Keep in mind, however, that the SIPC protects you in the event that your brokerage loses your financial assets. It does not protect you from losses experienced from investing in the financial markets.
This makes Robinhood just as safe as any other brokerage platform out there in terms of protection against the loss of your financial assets.
However, keep in mind that cryptocurrency held within Robinhood is not covered by SIPC or any government insurance program.
Robinhood does have a separate commercial policy in place that protects against theft of cryptocurrencies including cybersecurity breaches.
One final caveat here is that Robinhood offers both online savings and checking accounts. These are instead covered by FDIC insurance, not SIPC.
Through their partner banks, Robinhood offers up to $1.25m in FDIC insurance on their savings and checking accounts. This is done by spreading your money out across multiple partner banks.
Keep in mind, Robinhood itself is not a bank. Instead, they partner with FDIC insured banks.
Above and beyond the SIPC/FDIC insurance, you should also consider whether or not the Robinhood app itself is safe and secure.
Here are the steps taken by Robinhood to safeguard your brokerage account:
Overall, Robinhood takes many steps to secure your account.
However, there was a data security incident in November of 2021. Users should be aware of this and consider whether or not they trust the above security features to safeguard their personal information.