Robinhood is a popular financial app that pioneered the commission free trading revolution.
Starting off by simply offering commission free stock trades, they now have offerings such as cryptocurrency investing as well as a savings and checking account.
However, savers and investors might be wondering if their money is safe with Robinhood?
In this article, we will be explaining how Robinhood has both FDIC insurance as well as SIPC insurance, depending on which financial product you are using.
First of all, it is important to note that FDIC insurance is for banks only, not brokerage accounts.
Robinhood users who sign up for their Cash Management feature will have their uninvested cash held within their brokerage accounts deposited at a number of different partner banks.
In return, this allows users to earn interest on their cash, versus not earning interest prior with it just sitting in your brokerage account.
Cash balances held within your Robinhood brokerage account are actually covered by SIPC insurance, which is explained later on.
However, if you use this Cash Management feature, your cash is moved to one of their many partner banks.
Through those different partner banks, your deposits now have FDIC insurance. Since Robinhood has multiple partner banks, they can spread your money out across different ones in order to have a higher level of insurance.
A typical FDIC insured bank account offers $250,000 of insurance. Through their partner banks, Robinhood can offer Cash Management users up to $1.25m in FDIC insurance.
Keep in mind, Robinhood itself is not a bank. Instead, they partner with FDIC insured banks.
This same protection is in place as well if you decide to use the Robinhood checking account/debit card feature.
For those who use the brokerage platform to trade assets like stocks and ETFs, you can rest assured knowing you have insurance coverage through SIPC.
Robinhood Financial LLC is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash).
However, it is important to understand what this SIPC insurance actually protects against. This insurance covers you in the event that your brokerage loses your financial assets in one way or another.
SIPC insurance does not cover you against losses experienced as a result of investing in the financial markets.
On top of the other features, Robinhood also offers cryptocurrency trading.
It is important to understand, however, that cryptocurrency deposits are not insured by the FDIC or SIPC.
Cryptocurrency is not yet to be considered legal tender, so there is no federal insurance in place for the asset.
That being said, Robinhood carries their own commercial crime insurance policy against losses from theft, including cybersecurity breaches.