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Written by Cari Scribner on January 23, 2022
Category: 
FTC Disclosure

What Happens If Robinhood Goes Out Of Business?

Robinhood is a popular financial app among younger investors today.

With a few taps on your phone, you can invest in stocks, cryptos and even options through the Robinhood app.

However, many people are concerned about whether or not Robinhood is safe, since the company hasn't been around for a long time.

Rest assured, your stocks/ETFs are covered by SIPC insurance, more on that below. In addition, if you use Robinhood Cash Management your cash is FDIC insured as well.

We will go into what would happen if Robinhood went out of business. 

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FDIC/SIPC Insurance

First of all, if you invest in stocks or ETFs with Robinhood, your assets have SIPC insurance.

You can read more about this in our full article on Robinhood SIPC/FDIC insurance here.

In a nutshell, this covers you in the event that your broker loses your financial assets or cash. Since Robinhood is a member of SIPC, you are covered for up to $500,000 worth of securities, including $250,000 which can cover cash. 

So, if Robinhood somehow went out of business and lost customer assets, the SIPC would step in. It is highly unlikely that this would happen. 

If you use the cash management products offered by Robinhood, these accounts have FDIC insurance.

Robinhood itself is not actually a bank.

Instead, they partner with existing FDIC insured banks. If Robinhood were to go out of business, that would have no effect on your deposits which are actually held at the partner banks.

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Conclusion

First of all, it is very unlikely that Robinhood will go out of business.

While they are not profitable, they have a huge loyal base of users.

What would most likely happen if Robinhood ran out of money is that a larger brokerage platform would purchase or acquire them.

If you own stocks/ETFs with Robinhood or have idle cash in your brokerage account, these are covered by SIPC insurance.

If you use cash management products, you have coverage through the FDIC insurance of the partner banks.

Lastly, crypto held with Robinhood is not covered by any federal insurance program. That is because it is not recognized as an asset, since it is brand new. Instead, Robinhood has a separate third party commercial insurance policy in place against crypto theft.

Article written by Cari Scribner

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